Bloomberg News

Verizon Fee Boost Prompts Senator’s Call for Review

November 09, 2009

Regulators should review the decision by Verizon Wireless to double the fee customers pay for terminating smart-phone contracts, Senator Amy Klobuchar said.

The increase to $350 beginning Nov. 15 for Research In Motion Ltd. (RIM)’s BlackBerrys, new Droid devices with an operating system by Google Inc. (GOOG:US) and other advanced phones “shows us once again that the wireless industry cannot police itself,” Klobuchar, a Minnesota Democrat, said in a letter to the Federal Communications Commission today.

The FCC said on Aug. 27 that it is looking into early termination fees and other “factors that may impact consumers’ purchasing decisions,” including pricing plans, service quality and coverage. The agency earlier said it would investigate whether consumers are harmed by arrangements linking devices exclusively to a single carrier.

Klobuchar, who is on the Commerce Committee that oversees the FCC, asked FCC Chairman Julius Genachowski in the letter to review Verizon’s decision, announced Nov. 5, and to investigate the competitive impact of early termination fees.

An FCC spokeswoman, Jen Howard, declined to comment.

Early termination fees let Verizon offer customers “a greatly discounted device,” said Verizon spokesman Jeffrey Nelson in an e-mailed statement.

Verizon Wireless is trying to make the termination fees correspond more closely with the actual prices of the phones, Verizon spokesman Jim Gerace said on Nov. 5.

Anti-consumer, Anti-competitive

In a separate letter to Lowell McAdam, chief executive officer of Verizon Wireless, Klobuchar said she is concerned the fees “unfairly penalize consumers, bear little to no relationship to the cost of the handset device, and are anti- consumer and anti-competitive.”

Basking Ridge, New Jersey-based Verizon Wireless pays more than $200 to subsidize some of the smart phones, and it sees the termination fee as a way to protect its investment, Roger Entner, an analyst at Nielsen Co., said in an interview. The company counts on extra revenue from data plans, which allow subscribers to access the Web, to recoup the cost.

Verizon Communications Inc. (VZ:US), which owns Verizon Wireless with Vodafone Group PLC (VOD:US), rose 61 cents, or 2.1 percent, to $30.17 at 4 p.m. in New York Stock Exchange composite trading.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.


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