Love rarely lasts forever. This is particularly true with cell phones. When a network gets overwhelmed and service slows down or a new phone comes out on another carrier, many customers will see the opportunity for a better life with that certain other provider.
The obstacle has always been the expense of divorce in the form of ETFs, or early termination fees. For many, the cost of canceling a contract is enough deterrent to stay in an unhealthy relationship -- and the penalties seem to be getting worse. Thankfully, there may be some help on the way.
Minnesota Senator Amy Klobuchar introduced a bill to "rein in early termination fees" yesterday together with Senator Russ Feingold (WI), Senator Jim Webb (VA), and Senator Mark Begich (AK). The highlights of the bill include limiting the ETF for any provider to the amount of discount offered at signup. It would also require that in a two year contract, the ETF be prorated to 50 percent after one year and to zero after the second year.
This bill is contiguous with a series of actions by Kobluchar, who has battled for consumer rights with regards to mobile service before. Previously she has fought for the right of soldiers deployed to Iraq to leave the contracts without penalty and for anyone else who has moved to areas without service to do the same. Kobluchar's web site makes mention of Verizon as a prime motivator for her latest bill.
Verizon Wireless recently upped its ETF for smart phone users from $150 to $350 dollars. When asked about the increase, Verizon stated that it was necessary to help offset the cost of discounting smart phones when a contract is signed. On a month to month basis, a Droid costs $559 dollars. With a two year contract and the guaranteed revenue of your cellular bill, Verizon is able to offer the Droid at $199 through its online store. In this case, the increased ETF makes sense -- it is enough to offset the cost of the discount offered at purchase. Of course, the ETF is a flat rate. If a customer bought an HTC Ozone with a two year contract, it would cost them $50. With a no-contract MSRP of $350, the cancellation yields a $50 benefit to Verizon beyond offsetting the discount.
The FCC has written Verizon a letter inquiring about the matter and is expecting a response by December 17. The FCC wants to know how the ETF directly correlates to the cost of subsidizing smart phones. It also asked Verizon whether the ETF prorate plan was clear before purchase. Finally, the FCC wanted to know how it was that no other carriers had raised their ETFs if it was economically necessary to offset the cost of discounting smart phones.
[Image credit: current.com]
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