Regulators and lawmakers are attacking a decision by the nation’s largest wireless carrier to double the fee levied on subscribers who cancel their contracts early.
Verizon Wireless in November raised its maximum early-termination fee, or ETF, to $350 on new service contracts for smartphones and other “advanced devices” such as the Motorola Droid as a growing percentage of its customers are disconnecting.
The Federal Communications Commission in December began an inquiry into the hike, and a bill was introduced in Congress to set limits on such fees.
Verizon, which has 89 million subscribers, is struggling with rising customer turnover, known as churn. Once the industry leader in keeping subscribers, the company saw its churn hit 1.49 percent in the third quarter, up from 1.33 percent for the same quarter in 2008.
At the same time, chief rival AT&T, the exclusive wireless provider for the popular iPhone, saw its rate drop to 1.43 percent, from 1.69 percent for the same period.
“(A higher ETF) might be something that dissuades customers from hopping over to another carrier,” said Eric Wurtenberg, co-founder of Celltradeusa.com, which helps consumers transfer contracts. “That certainly wouldn’t be their public strategy.”
Verizon told the FCC last month that the ETF will help the carrier recover the cost of subsidizing cellphones to subscribers — the long-held reasoning for such fees. In return for a two-year service commitment, Verizon and other carriers sell devices for far less than they pay manufacturers.
But Verizon also attributed the ETF hike to the cost of upgrading its network to support advanced devices, higher commissions paid to sales representatives and other expenses.
FCC Commissioner Mignon Clyburn slammed the rationale, calling it “unsatisfying” and “troubling.”
“No longer is the claim that ETFs are tied solely to the true cost of the wireless device,” Clyburn said in a public response to Verizon. “Rather, they are now also used to foot the bill for ‘advertising costs, commissions for sales personnel and store costs.’ “
Following Verizon’s fee hike, four U.S. senators — led by co-sponsor Amy Klobuchar, D-Minn. — introduced a bill last month to set limits on ETFs. Among other things, carriers would not be able to charge a cancellation fee that is higher than the discount customers receive on the price of a cellphone when they sign a typical two-year contract.
Verizon spokesman Bob Kelley said the company didn’t raise the ETF to prevent customers from switching carriers.
“We believe that the higher ETFs fairly reflects the higher costs associated with providing these advanced devices at attractive prices,” Kelley said.
He also noted the fee is not mandatory because customers can choose to pay full price for a device upfront and not sign a service contract.
Despite the backlash, other major wireless carriers won’t say they’ll not do the same.
“I can’t speculate on future plans,” said Brooke Burgess, a spokeswoman for AT&T, the nation’s No. 2 wireless carrier, with 81.6 million subscribers.
T-Mobile — the fourth-ranked carrier, with 33.4 million subscribers — “has not announced plans to increase early-termination fees,” said spokeswoman Kristen Resare.
Only Sprint, whose 48 million subscribers put it at No. 3, said it wouldn’t do so.
“Sprint has no plans to follow suit with Verizon,” spokesman Dave Mellin said.
Andy Vuong: 303-954-1209 or avuong@denverpost.com
Early-termination fees for contracts
Verizon — $350 for smartphones, PDAs and other “advanced devices.” Decreases by $10 with each passing month, so canceling a two-year contract in the last month would cost $120. $175 for standard cellphones, with a $5 drop per month.
AT&T — $175 for all phones; drops by $5 per passing month.
Sprint — $200 for all phones; after five months, the fee drops by $10 a month; $50 is the minimum cancellation fee.
T-Mobile — $200 for all phones; drops to $100 if contract is terminated with 91 to 180 days remaining, $50 with 31 to 90 days remaining, and the lesser between $50 and your monthly recurring charges (including taxes and fees) with 30 days or under remaining.
Source: Post research
