Termination Fees--Poor Policy Or Business Necessity?
At last week's Consumer Electronics Show in Las Vegas, FCC Chairman Kevin Martin reiterated the possibility that the FCC would decide this year whether or not to regulate early termination fees--these are the fines operators impose on subscribers when they break their service contracts. These controversial and un-consumer-friendly fees run around $175 to $200--depending on the operator.
At issue is whether the FCC should declare that states have no jurisdiction over ETFs. Some believe allowing state regulators to oversee early-termination fees will force carriers to abide by contracts signed by their customers. However, others believe that having state regulators oversee ETFs would lead to inconsistent policies and actions.
ETFs have long been a controversial subject in the wireless industry. Consumer advocates vehemently oppose them, but wireless operators--at least most of them--maintain that they are a necessary part of doing business. Without them, operators could lose the ability to recoup customer acquisition costs, namely costly phone subsidies.
Isn't it time the industry took a closer look at early termination fees--before regulators step into the mix and possibly adopt unwanted policies?
One carrier has taken a stand on early-termination fees. In November, Verizon Wireless scaled back its termination fees by deducting $5 per month from the original $175 fee. In other words, the longer a customer fulfills his or her contract, the less they have to pay to break the contract. The new rule only applies to new contracts or renewals that took place after Nov. 15, 2006, but at least it is a step in the right direction. When Verizon Wireless announced the company's decision to pro-rate termination fees, then-CEO Denny Strigl (now the president and COO of Verizon Communications) said the change was necessary because customers are unhappy with the fees. "Early termination fees are tarnishing the industry," Strigl said. And he was confident that the change wouldn't adversely impact the company's low churn rate.
Of course, this isn't the first time Verizon has upped the ante when it comes to customer service. The carrier was the first to oppose a wireless number directory and it broke rank with the rest of the industry when it embraced local number portability.
Other wireless carriers need to take a cue from Verizon and rethink their ETF fees. Instead of relying on costly fees to keep customers loyal, why not concentrate instead on providing superior customer service, great network technology, state-of-the-art handsets and competitive rate plans? Consumers will respond favorably to companies that treat them well and provide great service. I agree with Strigl, early termination fees are tarnishing the industry and it's time that wireless carriers remove this black mark from their business plans.
P.S. I'm very excited to be the newest member of the FierceWireless editorial team. I'm anxious to hear your thoughts on how we can improve our editorial coverage. Please email me your comments, criticisms, etc. to [email protected] -Sue