Legislators Propose Price Controls on E-commerce

Always a contentious topic, the idea of price controls was floated last week by two members of the U.S. House of Representatives that would establish a government rate-setting board to impose price controls on electronic payments systems. The Electronic Payments Coalition, for one, is not happy.

But should telecom operators care? Perhaps.

Rep. John Conyers (D-Mich.) and Rep. Chris Cannon (R-Utah) say this legislation, H.R. 5546, would give the board authority to set rates merchants are charged for access to electronic payment systems. Also called the Credit Card Fair Fee 5 Act of 2008, the legislation would make it so for “any given covered electronic payment system, such rates and terms shall be the same for all merchants, regardless of merchant category or volume of transactions (either in number or dollar value) generated.”

The Electronic Payments Coalition strongly opposes the legislation saying that it replaces the free marketplace with a price control scheme governed by three unelected electronic payment judges and under control of the federal government.

“Let's be clear,” the coalition said, “consumers will see no economic benefit from such price control legislation. This legislation is a thinly-veiled attempt by members of the Merchants Payments Coalition to lessen their own costs of doing business…government intervention in a system that is clearly working well for all parties in the marketplace would be counterproductive and ultimately harmful for all involved.”

The coalition says the electronic payments system has revolutionized consumer purchasing power, generated more than $2.5 trillion in sales last year for U.S. merchants and processes more than 10,000 transactions per second around the globe. “Innovation, technology, and economic growth for all parties involved are hallmarks of a highly efficient free market system. However well-intentioned, any government intervention could never match the ability of the free market to determine the most appropriate price for services,” the group said.

This comes at a time when mobile operators are looking for ways into the point-of-sale and e-commerce marketplace with technology such as near field communication and bar coding used in conjunction with the mobile phone.

Sprint has a trial underway using NFC and specially modified mobile phones that let users scan their phone for purchasing tickets to and responding to ads on the Bay Area Regional Transit system. AT&T also announced its mobile banking platform in November.

David Chamberlain, principal analyst of wireless for In-Stat, agrees that fees charged by the credit card associations can be onerous to merchants, particularly smaller merchants. “However, nobody is going to provide these systems out of the goodness of their hearts,” he said. “There must be a financial incentive.”

Chamberlain said that mobile operators have been subsidizing the price of cell phones and that NFC chips will bump the price of the handset dramatically. And there is no guarantee that consumers will accept price increases for handsets, in order to do mobile commerce. It will be up to the mobile operators to provide compatible handsets to consumers as they did with cameras and MP3 players. But the operator makes money from picture messaging and from selling music files and it is clear they would expect to get something out of each mobile e-commerce transaction. However, the model is unclear. Still Chamberlain believes it will move forward.

“The mobile operators must have some sort of financial incentive to move forward with NFC transactions. If they aren't able to get some per-transaction compensation because it's blocked by legislation, I think there are enough creative people on both sides to find a way to discover some other way to provide that incentive,” Chamberlain said.