One of the things that gripes an awful lot of people is the so-called early termination fee, or ETF, which you have to pay if you try to cancel your cellphone contract before two years are up. It is usually about $200, so if you are a Verizon customer drooling to get an iPhone, you are out of luck and can’t move over to AT&T unless you are willing to pay the piper’s penalty.
There is another side of the story, of course. Cellphone companies offer handsets at subsidized prices – below what they really cost – to woo customers. If you accept the subsidy, you should at least keep buying the service for a while, so that the carrier can recoup its investment in your whiz-bang phone toy. If you prefer not to subject yourself to an ETF, you can usually do so, but then getting the phone you want will cost you more. Because the cellphone companies make the deep discount on the phones so attractive, most people go for the ETF, which is, of course, exactly what the phone companies hope to accomplish: they get their hooks into you as a customer.
So many people got stressed out about ETFs, though, that Congress finally threatened to pass a law about them. Exactly how that would have shaken out we can’t say, because the cellphone companies made a pre-emptive strike by pro-rating their ETFs. In many cases, the fee goes down a little each month and is smaller in the final few months of your contract. Congress quieted down after that, even though the ETF stays high enough to cause indigestion when you have only a month or two to go before true freedom is yours.
However, quiet rarely endures.
Verizon bucked the trend recently by doubling the ETF on “advanced” handsets, bringing it up to a whopping $350. This got Congress exercised again, leading Senators Amy Klobuchar (MN), Russ Feingold (WI), Jim Webb (VA), and Mark Begich (AK) to introduce a bill just yesterday (December 3, 2009) which would prevent wireless carriers from charging an ETF higher than the discount they give on the cellphone purchase. It would also require (a) pro-ration of ETFs so that they drop to half after the first year of a two-year contract and are pro-rated down to zero by the end of the contract, (b) clear and conspicuous disclosure at the time of purchase, and (c) a statement on each month’s bill of how much of the ETF remains.
Not to be outdone, or perhaps to tell Congress that “we cand handle it, folks", the FCC wrote a letter to Verizon today (Dec. 4, 2009), asking a few pointed questions. You can check out the FCC’s letter here. The Feds want to know how customers are informed of the amount of their ETF when they sign up for service – by a means other than searching for fine print on the Verizon website (which is probably too small to read on your Verizon handset – if, that is, you can find it at all). What information is given to those who sign up on the Web? Perhaps more important, how much does that fast-talking salesperson in the big box retail store tell the customer? And what about the pro-rating of the ETF? Do customers learn everything they are stuck with before their free trial period expires? And do they understand the details of their trial period?
And by the way, the FCC asks, how do you decide which handsets get socked with the higher ETF? Is it based on the wholesale price Verizon pays, or might popularity of the handset play a part? Are wholesale prices going up? Does the ETF depend solely on the handset or also on the type of service provided? Is Verizon going to extend the super-ETF to other devices and services in the future?
But there’s more. While folks under 25 probably can’t live their lives without mobile Internet access, some more elderly folks probably are happy to ignore the Internet when they are away from their computer. We hear, the FCC says, that for those who eschew web access, Verizon is charging $1.99 if you make a mistake and use Mobile Web service accidentally. Do phones have one-button access to Mobile Web which makes “accidents” likely to happen? Can the feature be turned off? And word is that Verizon charges a fee for transmitting a blocking notification. Does this mean that there is no way to avoid the risk of accidental charges?
It is not so clear to what extent the FCC can regulate charges for other than communications services without a substantial change in their historical approach to rate regulation. But if you poke the regulatory beast hard enough by angering enough members of the public, the beast starts to snort.
Verizon has until December 17 to respond to the inquiry. If its response is made public – and, in view of the questions the FCC has asked, that’s a very big “if” – it should make for interesting reading.