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Verizon to FCC: cancel fees based on high phone costs

updated 05:05 pm EST, Fri December 18, 2009

Verizon says ETFs due to smartphone price

Verizon today provided its anticipated response (PDF) to the FCC's inquiry about its sudden hike in early termination fee (ETF) rates for smartphones. The carrier insists that the higher prices of phones like the Motorola Droid are too high to leave the cancellation fees at their regular $175, as it would take a significant loss if a customer with "advanced device" were to quit but only pay the previous one-size-fits-all rate.

It also says the relatively mild prorated fee, which still costs $120 with just a month left in a contract, is necessary. Many of those who buy phones like the Droid would still result in a loss without the extra month or more of service charges. A customer who leaves halfway through a two-year plan typically costs Verizon about $460, according to the letter.

Other arguments in the notice insist that Verizon needs more guaranteed revenue from these users to support the costs of maintaining and upgrading the 3G network to support heavier data use, and that the FCC itself in 2003 believed carriers had a right to recoup the up-front money spent on the phones if a customer left early.

On frequent complaints of $2 fees for accidentally launching the web on non-smartphones, Verizon deflected concerns by claiming that no fees are charged when visiting the default Verizon page, though this contradicts statements from some of its own subscribers.

It's not entirely clear if the claims will satisfy the FCC as the pricing of phones doesn't necessarily correlate to the claimed losses. The $350 ETF for a Droid almost exactly matches the price difference for a Droid between its two-year and contract-free options and, in theory, should significantly reduce the ETF towards the end of a contract. Also, the $560 price of a Droid off-contract is retail and assumed to be above the actual (if undisclosed) direct cost paid to Motorola.

The investigation has brought intense scrutiny on to not just Verizon but the entire US cellular industry. Advocates both inside and outside of government have attacked the carriers for allegedly abusing ETFs to "trap" customers into contracts by making it prohibitively expensive to leave should the customer be unhappy with the quality of service after an initial trial period. Critics began paying greater notice to the issue after demand for the iPhone highlighted the ETF as a price of switching carriers to get the Apple handset.

Minnesota Senator Amy Klobuchar has recently introduced a bill that would ban rate spikes like Verizon's in the future, though whether it will survive to become law is uncertain.



By Electronista Staff
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Comments

  1. nowwhatareyoulookingat

    Fresh-Faced Recruit

    Joined: Jul 2009

    +5

    simple solution

    Have a separate line item on the bill for the 'cell phone payment' (5 or $10 a month) and an indication of how much is left to pay (indicating how much you have to pay to leave early).

    Of course, then the carriers don't get to keep charging you this amount AFTER you have paid off the phone... Now, they want it both ways, by charging you extra to leave early [and generally more than what you "owe" on the phone] AND keep charging you a monthly fee that includes an amount for paying off the phone [which now becomes 100% profit for them].

  1. iphonerulez

    Dedicated MacNNer

    Joined: Nov 2008

    +2

    Owning a smartphone isn't a cheap

    proposition. People should think long and hard whether they can actually afford a smartphone contract for two whole years.

  1. b9robot

    Fresh-Faced Recruit

    Joined: Feb 2009

    +2

    My response to Verizon, B.S.!!!!

    My response to Verizon, B.S.!!!!
    Like the FCC already calculated, most carriers make twice the amount of the cost of the phone so charging a fee even with one month left is ripping the consumers off BIG TIME!!! Raising the fee is just adding icing to there cake!

    Don't be fooled by this malarky FCC.

  1. ruel24

    Fresh-Faced Recruit

    Joined: Sep 2009

    -1

    Droid is cheap

    Unlike the iPhone, all Droid phones are plastic and cheap. I cannot see the costs being that much more than a regular phone. Yes, they are more, but I just can't fathom them being ridiculously more.

    We've gotten to the point that there are only 4 decent carriers, and soon to be only 3 if T-Mobile and Sprint merge. This lack of competition is going to drive up prices and ridiculous fees such as this. They simply need to compete for our business - not lock us in with high fees for moving to a better, more advantageous plan with another carrier.

  1. Bogartte

    Forum Regular

    Joined: Jun 2000

    +2

    No fees!

    Cell phone carriers have been ripping people off for years, with their prices, and additional fees, carry-over minutes (what TF-k is that? Carry-over minutes? I know what it is, and it means they "allow" you to use what you pay for! Gracious of them, isn't it?)

    They obviously charge cancellation fees because their service sucks, obviously. If carriers supplied good service (and support, especially support!) they wouldn't need to charge cancellation fees. Simple as that!

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