updated 07:05 pm EST, Wed December 23, 2009
FCC doesn't believe Verizon
The FCC in a response (PDF) today rebuffed Verizon's claims that its ETF rate hikes are necessary. Commissioner Mignon Clyburn in a public letter described Verizon's justifications for doubling early termination fees as "unsatisfying" and sometimes "troubling." While the carrier primarily explained them as necessary for covering costs when buyers of the Droid and other phones leave their contract, Clyburn says Verizon has expanded the reasoning well beyond just the actual hardware.
"No longer is the claim that ETFs are tied solely to the true cost of the wireless device," she says in the notice. "Rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel, and store costs.' Consumers already pay high monthly fees for voice and data designed to cover the costs of doing business. So when they are assessed excessive penalties, especially when they are near the end of their contract term, it is hard for me to believe that the public interest is being well served."
She also directly challenges Verizon's denial that it charges $2 "phantom fees" when customers launch the web browser, observing that numerous customer complaints and several media reports directly contradict its statements. Many of the complaints have noted that the charges not only appear when Verizon's own portal page loads but that they occur even when data has been blocked on the account or phones have been switched off.
Clyburn plans to debate the issue with other FCC commissioners in 2010 and is expected to hold a more formal inquiry.
Both the ETF rate and phantom fee disputes are likely to have significant repercussions for the entire US cellular industry as they may affect pricing for all carriers. Although it remains true that carriers risk losing money with a customer if they terminate their service before the device subsidy has been paid off through service costs, critics have accused AT&T, Verizon, and other major carriers of keeping the rates high for as long as possible to "trap" customers in their contracts even if they encounter poor service or are well into their agreements. Verizon's new $350 fee, though prorated, would charge a customer $120 to leave even if they're just a month away from ending a two-year contract. [via BBR]