A New Twist On Wireless Early Termination Fees

Posted by: Olga Kharif on June 12, 2008

After opposing federal regulation of early termination fees for years, telecom companies appear to have made an 180-degree turn recently. Faced with dozens of lawsuits in different states, companies like Verizon Wireless have asked the Federal Communications Commission (FCC) to get involved. The result may be not what Verizon has bargained for.

Before, on June 12, the FCC held a hearing on those pesky fees consumers have to pay to get out of their wireless contracts early, most experts expected the agency to advocate for mild regulation. The FCC might require carriers to prorate their penalties over the life of a contract, it was supposed — which is something that most carriers do already. But today’s hearing was full of unpleasant surprises for carriers.

In his opening remarks, Chairman Kevin Martin said that he’d like the termination fees to reflect the value of equipment a consumer receives from a carrier. “For example, a $500 phone shouldn’t have the same early termination fee as a $50 phone,” he said. Considering that, according to consultancy NPD Group, an average phone sold in the U.S. costs $87, this policy alone could axe the majority of early termination fees. What’s more, Martin suggested that “when a consumer renews his contract without receiving new equipment, the early termination fee should not be extended.”

But here’s the biggest potential landmine: Martin also pointed out that any contract should only last a “reasonable length of time.” What exactly does that mean? Is it reasonable to have to sign a two-year contract for wireless service? Perhaps not. If the FCC mandates that a one-year contract is more reasonable, that alone could turn the industry upside down — and greatly benefit consumers. Kudos to Kevin Martin.

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Reader Comments

moses

June 13, 2008 04:36 AM

Personally i would like to get out of my contract and take advantage of the new lower priced iphone, but i can't because of the 2 year contract i signed. I would be hit with high early termination fees on both phones. This is a good move on the experts to be on the consumers side.

Big Al

June 13, 2008 09:11 AM

Well the end challenge will be whether or not the big companies with their big republican special interest group $$$/spending can take advantage of the Bush administrations willingness to overlook the interests of the common person in lieu of the big company interests before Bush leaves office. While Kevin Martin is making these comments he still ultimately is the puppet of a puppet (he is a puppet to the Bush team and the Bush team is a puppet to big business).

Krishna N

June 13, 2008 09:12 AM

In most other countries, there are no contracts and there is no obligation to buy your handset from your cellphone provider - you may buy any phone you like, and choose any provider you like. If you buy cable from Time warner, do you have to buy a TV from them too?

The contracts are one reason why the latest cellphones from Asia and Europe have better cellphone choices here in the US. It is time to do away with contracts and let the customers decide how long they want to stay with a provider based on their services and not on the phones they have.

n95 guy

June 13, 2008 09:30 AM

WOW! about time. there shouldn't even be contracts in the first place

DJR

June 13, 2008 09:52 AM

Ok, maybe eight years of seeing Bush's welfare for billionaires has made me unattractively cynical, but my antennae twitch any time someone associated with this administration proposes anything that seeks to re-balance the interests of consumers and corporations. On the face of it, Kevin Martin's comments look promising, but let's see what comes out of all of this. Will the wireless companies' lobbyists write the final version of the new regulations as we have seen with pharmaceutical policy, banking, etc. Or will the FCC actually keep its spine?

Samantha

June 13, 2008 09:53 AM

As a consumer I think this is great. Does free phone = no cancellation charge? Somehow, I feel this will only increase the activation fees. It may be better to specify a 30 or 60 day notice of cancellation or charge one or two months of service for early cancellation.

The Phoenix

June 13, 2008 09:54 AM

I think this is wonderful. Too often the consumer is being hit will all these extra fees and it's not fair. I recently thought about upgrading through my wireless provider, but realized that I would have to stay with them for another year at least to get a new phone upgraded. NO THANKS! Since my contract was ending anyway I decided to purchase the phone myself and just pay the month to month bill instead of being stuck in a contract. Now I have the freedon to go with whomever I choose.

red

June 13, 2008 10:31 AM

These regulations are so over due! A profound thank you to Mr. Martin for leading the way out of loop sided contracts. The consumer has very little choice, and the contracts today are written so that the carrier doesn't even have to provide coverage, just simply a phone.

Bravo

gordon cordell

June 13, 2008 10:33 AM

On the "reasonable length of time" comment, at Verizon Wireless a customer always has the option of a one-year rather than a two-year contract, and a customer is never required to extend the contract when buying a phone. A customer can pay retail price and avoid a contract extension. Customers will get a limited benefit if they're paying $300 for a phone they could get for $100 with a two-year contract, particularly if they're satisfied with the service they're receiving. Anyone who doesn't understand this should visit a Verizon Wireless direct store and get the facts. I would recommend this to the writer of this article, Olga Kharif.

Schratboy

June 13, 2008 10:40 AM

Scrub the fees altogether! The carriers use these tactics to deliver sub-par coverage and horrible customer service. Your choice? Leave and pay several hundred dollars or suck it up and continue the misery.

The carriers are notorious for perpetually extending contract terms another two years for virtually any service change. You want to add text--extend your contract another two years. The wireless carriers have created an annuity service, designed to make it difficult for their subscribers to leave without paying a hefty price. This isn't service, it's extortion.

Lars

June 13, 2008 10:42 AM

Kevin Martin is a hero of the people. It is about time someone did something about these carriers that try to take advantage of us. Years ago 2 year contracts were unheard of. Competition was heavier.

Anymore the carriers don't really have to compete for our business. They all offer nearly identical coverage for nearly identical prices. It's getting to the point where people just go with whoever their family and friends are with so they can make calls for free.

Maybe with shorter contracts companies will start doing something inovative to get our business. I even have a starter idea for them. Carry better phones. Get phones that have good audio. Don't sell something that is called a smart phone unless it can actually do something smart.

Camille Caupp

June 13, 2008 12:20 PM

I once had Verizon and when I let my job in another state and moved back home there was no Verizon service there. I had to pay over $150.00 to end service which I would not have done, if they offered their service in my home state. I talked to them until I was blue in the face when this occurred and finally I gave up and wrote a check...this has always bothered me and I will never enter into an agreement with Verizon ever again...thank you

Ed Banks

June 13, 2008 12:34 PM

Finally somebody seems to be waking up and realizing that FCC, FTC, SEC, FAA, FDA, and all these regulators should be working hard to protect consumer's interest and not the greedy, profiteers and exploiters. On the other hands, one should still be apprehensive of the telecom industry's motivation here. Nearing the end of the worst administration ever known in US history, telecom industry is likely coming to FCC for protection regulation that will sheild them from definite lawsuits and real change from Obama administration. Let us not celebrate Kevin Martin's "I have seen the light" gesture yet, this administration is determined to gutter all regulations to favor corporations at the expense of the public. Hence no one should be surprise if by January 20, 2009, Kevin Martin still did not do anything tangible to reign in the exploitative and monopolistic fees from telecom and media companies.

Geiger

June 13, 2008 01:47 PM

YAY!

toledo fank

June 13, 2008 01:51 PM

Just plain greed......like the cable companies now wanting to charge for bandwidth usage. Infrastructure...energy...things we need in our daily lives...those companies can do what they want...like the old banking playbook....

Luddite

June 13, 2008 01:52 PM

This is at best a minor victory for consumers. Termination charges were justified in the past as a way to allow cell phone companies to provide below cost phones to subscroibers. You'd sign for the phone and a rate plan for X period of time. By staying on the plan for the full term the company recouped the cost of the phone. If you left early the company had every right to require reimbursement of their costs via a "balloon payment" termination charge. By eliminating term charges cell phone providers will simply raise their rates and /or stop selling cell phones below cost. How consumers will be better off evades me.

Metra

June 13, 2008 01:56 PM

Some people love to blame the Bush administration for everything. They are to blame for much, but cell phone contracts? Unless this article is about something else that I missed..not!
Big Al, your comments are ridiculous, but thanks for the laugh.

Robert Grimes

June 13, 2008 02:02 PM

Oh BooHooHoo it's not fair! Before the mid '80's no almost no one had cell phones at all. IT'S NOT A NECESSITY! Don't like the contract? Don't sign it! There are plenty of providers out there and some of them even do have services without contracts. If you regulate them they will just find a way to pass on the cost to you and in doing so will probably figure out a way to get even more money. Sure Europeans offer a simpler system but look at what it costs. The phones aren't cheap, free mobile to mobile? NO! Free long distance? NO! Free nights and weekends? NO! You people are spoiled!

Justin Pye

June 13, 2008 02:44 PM

To Camille

I'm pretty damn sure that they have to let you out of your contract without a fee if you get no coverage. It is either part of the contract itself or as a result of one of the lawsuits mentioned in the article.

BrianGriffinLovesYou

June 13, 2008 09:40 PM

As Delmar said, "I'm with you fellers."
Looks like the only one against this is the guy that works for Verizon (Yes, you, Gordon).

sanseiryu

June 16, 2008 02:47 PM

The argument that the wireless companies are somehow eating the costs of the phone is bogus at best. Every other consumer electronics device comes down in price as more are sold. There is very little difference in one phone from another, from this manufacturer to the next manufacturer. All use very nearly the same chipsets, software. So where is this so called high cost of the phones. Look at the IPhone. A 200 dollar drop just three months after introduction? What did that do except make the phone even more popular than ever.

dogalicious

June 23, 2008 07:27 AM

First of all. Wow. I didn't know that Pres. Bush had such a "god-like" power over business. He controls everything?

Second of all... It's up to us, the consumer, to put up a fight with these companies and demand reasonable service. For 6 straight years my daughters phones only lasted for half of the contract time.. which has resulted in me spending more money on new phones for another two year ride. If the consumer stands up and refuses to go along with this stuff it will stop. As you can see, it wasn't the replacement of Bush as president that is dealing with the cell phone issues, it's the fact that many consumers filed lawsuits.. We all need to refuse to be taken for this wild ride that sucks our hard earned money from our bank accounts.

Pondering

August 4, 2008 01:08 PM

Ok, so they drop the ETF's and we pay more for the equipment, that's fair.

But now I want to see that profit that was able to pay for my equipment returned to me.

Has everyone forgot about this. If they want to charge full retail for the phone, GREAT! this means lower service charges, unless we're are to naive to demand it. This will especially benefit the large percentage that according to this article owns a cheap phone.

Nix 24

August 4, 2008 04:31 PM

Unlike pharmaceutical companies and oil companies, wireless companies are not makeing substantial profits. Look at Sprint, they have been down graded to junk bond status. This isn't an industry that can or will just take the loss of revenue. If you eliminate the early termination fee, phone prices will jump up, instead of that 19.99 phone or free phone you get you will be paying at least 179.99. Look at any carriers web site and look at the price break down, our price is always after the 150-250 'instant rebate' that was the reason of the early term fee to begin with. You get a credit twoard the phone if you agree to stay with the company for two years. You have the choice at every company to not sign a contract, you then have to pay full retail for the phone. Eliminate the contract, loose the credit.

My guess is they will just turn it around a bit, give you a 200 bonus on the 24th month if you stay with them that long.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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