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.