FCC To Hold Hearings On Early Termination Fees

Isaac-Lew sends word of an article in the Washington Post reporting that on June 12 the FCC will hold a hearing regarding cellphone early termination fees. The Commission may look at early termination fees for TV and Internet service as well. The wireless carriers are taking a Bre'r Rabbit approach toward possible FCC regulation of early termination fees — the FCC's intervention would pre-empt a number of class-action lawsuits going forward against Verizon, Sprint, and others. These suits, stemming from state regulations, could cost the carriers billions. "...the carriers have renewed a lobbying effort in recent weeks to persuade the FCC on a legal definition that would stave off the state lawsuits on cancellation fees. On May 6, 2008, Verizon Wireless chief executive Lowell McAdam and the company's chief lobbyist, Tom Tauke, met with [FCC Chairman] Martin, urging him to adopt a federal policy, according to FCC records."

Comments

Market Forces At Work

[milsoRgen]

Early termination fee's are ridiculous, I can understand an earlier time when the costs of building the cellular network were to be thought of. Now it would seem they like their little cash cow, must help them subsidize the latest shitty phone. It's a shame it's taken this many years for it to finally get some government attention.

Re:Market Forces At Work

[Robert1]

I'm not sure what you're getting at. In Europe when you want a new phone you have to shell out several hundred dollars, there are no free phones or discounts. The phone companies here give them away for free*.

*Of course the price of the phone is rolled up into the price of the service you get - that's why new phones need a 2 year service plan because after 2 years you will have paid off the cost of phone. It is also why when you renew your contract you get a new phone, since you have paid off the old one and are making payments on the new one.

If there were no cancelation fees then the company would have no way to make up its initial gift of a several hundred dollar phone to you if you decided to stop paying the monthly fee for it.

If the FCC strikes down cancelation fees then the price of phones will suddenly increase several hundred bucks. This isn't necessarily a good thing for the market since almost everyone I know tends to go for the free phone or the 50 dollar phone when getting a new plan - no one is willing to spend several hundred dollars. At least, not in a lump sum up front.

Re:Market Forces At Work

[Anonymous Coward]

If the FCC strikes down cancellation fees then the price of phones will suddenly increase several hundred bucks. This isn't necessarily a good thing for the market since almost everyone I know tends to go for the free phone or the 50 dollar phone when getting a new plan - no one is willing to spend several hundred dollars. At least, not in a lump sum up front. What I would like to see is:

A) The "free" phone would be require the contract and have it clearly stated (not buried in the contract) that this will include both an increased monthly cost and a early termination fee. The termination fee should be the amount you haven't paid off yet. Ie, keep it for year and a half and cancel, you only have to pay the remaining balance.

B) The option to buy a phone upfront in full, and have a monthly discount (compared to the "free" phone cost). As it is with most companies you can't do this. Even if you spend hundreds on a phone, you have to fight with them to get service without a multi year contract if you're able to get service at all. Even then you pay the same monthly cost as the person with the "free" phone.

I'd like to have the choice. Personally, I'd take B. What I have now is a "free" phone, but I read through the contract you have the choice to not renew it after the 2 year term. I took that option, though it took a lot of arguing with them over it. I still pay the same amount even though it's a three year old phone, but at least I can cancel it whenever I want.

Re:Market Forces At Work

[JohnWhitney]

When I was using Sprint as my carrier, and asked them to change my phone number be local to the new location that I had moved to, they told me they wouldn't do it without signing me up to another year-long contract.

This is not subsidizing the price of anything. It is only used to lock me into their service and line their pockets. Since I was done with the contract I had with them, I decided I'd rather switch to a new carrier than be treated like that. They got MUCH more willing to work with me when I told them I was cancelling... to late for them, though.

Re:Market Forces At Work

[Adambomb]

no one is willing to spend several hundred dollars. At least, not in a lump sum up front. Most of the people i know here in canada fit what you describe there.....until they end up in a situation where the phone fails or is lost or stolen. Cellphone theft is the biggest cash cow in terms of the devices market for the providers.

They'll change their minds if they end up paying for a few months worth of contracted service that they cant use. If they never run into that, well its a moot point and they'll probably continue happily with the contracts. If you know you're going to use the service for the length of the LTC and that you can deal with replacing the phone in the event of the unforseen, AND read your damned contract then there really is no problem with this. The problem there is no one is willing to wade through pages of fine print to check every possible caveat situation (which isn't exactly a fault but neither is it transparent and honest).

Another thing is that there are a lot of contracts with clauses that i'm fairly sure are illegal (in canada at least, i'm not sure how things would work in the US there) such as disclaiming liability for the actions of their customer service representatives in its entirety (at least it was in certain companies contracts when i was doing cell phone customer service back in 2004-2006). I honestly wonder how many of these "contractual obligations" would actually hold up in court given a good attourney with the balls to bring it to the big boys.

And to the complaint people have that such actions would increase the price of cellphones. YOU'RE ALREADY PAYING THAT PRICE FOR THE CELLPHONE. It's simply rolled into the costing of the service, and MUCH harder to check the true cost effectiveness of the two (device and service). If providers had to advertise contractless prices primarily and list contractual bonuses seperately, it would make things much more transparent. There is no reason they cannot keep the ETF's out of the contract if they do not provide the device, and if its quite clear in the contractual bonuses that there is a penalty fee if one DOES subsidise a device.

Also remember that if you activate your own phone on a contracted plan, the ETF is still the same regardless of whether they provided you with a phone or not (ie if you take a contracted 'special offer' and upgrade your plan with the phone you already have). Granted people can just get a new one with the new contract to not have the liability for no reason, but that seems rather wasteful if the previous device does everything the client wants already.

People always say that you should read your contracts, but to be quite honest the majority of contractual ETF cases i ran into were situations where the customer did not even know they had a contract. If they accept a plan over the phone, are told it comes with a contract, and the notes on the account state that the user was advised of the fee (whether they were or not) good luck trying to prove it. And good luck trying to subpoena the call recording without a harsh capital investment in either time or money.

Except that's not really the way it happens

[Crazy Taco]

*Of course the price of the phone is rolled up into the price of the service you get - that's why new phones need a 2 year service plan because after 2 years you will have paid off the cost of phone. It is also why when you renew your contract you get a new phone, since you have paid off the old one and are making payments on the new one.

That's all well and good in theory, but that isn't even remotely how things happen in practice. Cell phone companies actually use these plans to protect themselves from free market competitive forces and to secretly overcharge people for services and products they've already paid for. I can (and will) back that assertion up with examples in the next few paragraphs, but let me say first I hope those lawsuits suck tens of billions of dollars out of these cell phone companies, because they've easilly gotten billions in ill-gotten gain. On to the examples:

When my wife and I got married December 2006, I was three months away from a new phone and and ending a two year contract. We went to Verizon and asked to consolidate our two phones into one family plan. They did this, but then without telling us extended our contract by a full year. All we wanted was consolidated billing: we kept our same phones, our same numbers, etc. Nothing changed. But they extended our contract by a year, and suddenly I'm continuing to pay off my already paid off phone, I didn't get a new one, I'm told leaving will cost me a 200 dollar termination fee (for what, I might ask, since my phone is paid off), and getting a new phone will cause them to extend my contract by two years.

But it gets better than that. My wife and I found we weren't using all that many cell phone minutes, so we went back a few months later to lower the minutes on our plan. They secretly extended our contract again without telling us. Meaning once again I'm paying for a paid off old crappy phone, I still didn't have a new one, and I was going to get charged an early termination fee (for no justifiable reason) if I quit.

So that's how these things really work in practice. They do nothing but screw over the consumer in what really is an entirely illegal way. Obviously, if I had known in either case my contract was going to be extended, I would have said no way (I didn't find out about those secret extensions until months after the second incident). What it comes down to is this: I was unknowingly placed by Verizon into a contract I never agreed to, and then was charged an early termination fee quitting it! That is the definition of unethical, I'm not the only one they did this to, and the judge can't take away enough billions from them to satisfy us (or make up for what all these cell phone companies have done to American consumers).