Four senators, including Sen. Amy Klobuchar (D-Minn.), introduced legislation that would limit the amount that wireless carriers can charge in early termination fees (ETFs). The bill would put a cap on the ETFs based on the cost of the phone, and would require carriers to pro-rate ETFs.
The other senators who sponsored the legislation are Sens. Russ Feingold (D-Wis.), Jim Webb (D-Va.) and Mark Begich (D- Alaska). "Forcing consumers to pay outrageous fees bearing little to no relation to the cost of their handset devices is anti-consumer and anti-competitive," Klobuchar said in a statement.
CTIA, the wireless industry's trade association, shot back that the legislation was simply not needed. "This legislation is unnecessary simply because wireless carriers already pro-rate ETFs," CTIA President Steve Largent. "That was the response of a highly competitive industry to consumer demand, and this type of prescriptive mandate runs the very real risk of limiting consumer options in the future." Spokesmen from Verizon Wireless and Sprint also defended their respective ETF policies.
And in a separate but related action, the FCC sent a letter to Verizon asking the carrier to explain its recently announced "advanced devices" ETF, which raises the pro-rated fee to $350 for devices including netbooks and some smartphones. The FCC also raised questions about a $1.99 fee Verizon charged some users for unintended mobile Web access, following media reports about the incident.
In its letter, sent to Steve Zipperstein, Verizon's general counsel, the FCC raises a number of questions, including: "It appears that if a customer cancels a two-year contract after 23 months, the customer would still owe an ETF of $120. Is this correct? If the ETF is meant to recoup the wholesale cost of the phone over the life of the contract, why does a $120 ETF apply?"
Verizon spokesman Jeffrey Nelson issued a response to the FCC's letter defending Verizon's ETF policies. "Nobody is required to pay an ETF," Nelson said. "You always have the choice of buying a mobile phone at full price with no ETF. Or you can buy a device at a discount with a 1- or 2-year contract. If you stay with your contract, you don't pay a fee at all."
As for the mobile Web charges, Nelson said "a few months ago we modified our service plans so when somebody accidentally turns on a data service they don't want, and they quickly turn that service off, there's no charge. Even if this happens a few times a month, there shouldn't be a charge on the bills."
Early termination fees essentially are intended to protect the subsidy wireless carriers apply to the handsets they sell. The fees also serve to deter customers from opening a new line of service, paying for a subsidized device, canceling the line and then selling the device for a profit. ETFs generally are only applied in a postpaid service scenario.
However, this is not the first time carriers' ETFs have come under fire. In recent years wireless carriers have faced FCC inquires and class-action lawsuits over the practice.
- see the FCC's letter to Verizon
- see this WSJ article on the FCC's letter to Verizon (sub. req.)
- see this CTIA statement
- see this WSJ blog post on the ETF legislation (sub. req.)
- see this The Hill article
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