Early termination fees have always represented the flipside of subsidized pricing -- the necessary evil that keeps free phones free. Thing is, they were tough enough to swallow at $175 or $200, but Verizon's recently gone for the jugular in a hell-bent effort to keep subscribers locked in by upping the fee on vaguely-defined "advanced devices" (read: any phone a power user would ever want)
all the way up to a mind-bending $350. Turns out the FCC is as confused and worked up as everyone else, though, having fired off a 4-page communique to Verizon's veep of legal and external affairs today asking how customers are notified of the new ETF, how the prorating formula is calculated (hint: they don't like that you still pay $120 after 23 months of a 24-month contract), and how an "advanced device" comes to be, among other things. Riding on the letter are a few extra questions about inadvertent mobile web charges for customers that aren't signed up for a data plan, totaling nine paragraph-long queries that the feds want answered by December 17. Your move, Verizon.
[Thanks, Daniel P.]
posted December 4th 2009 1:46PM
Finally someone Gets on them about this kind of stuff... Hopefully it sets a precedent for other inquiries.
@Digital1
Could they not have added a line in about their involvement in collusion with other telecom companies over text messaging prices?
Typically I'm not for the government sticking their nose in matters such as this, but in the telecom sector I think its much needed. Especially with the cable companies and their near monopolies in various markets.
@Digital1
Oh no! A strongly worded^W^W plaintive letter asking Verizon to please explain themselves! It only gives them two weeks to respond on a Request For Comments opened on July 6th, 2005!* Consumers are soooooo protected!
* 05-194 http://www.consumerlaw.org/initiatives/energy_and_utility/content/telecom_consumers_ETF.pdf
@MEAT *shrugs* It's better than nothing.
@Digital1
You know it's cuz Pres. Obama uses the big V and does not like this move.
Personally, I had hoped this letter would get to Verizon late on Dec. 18, so that the FCC can take further action.
This is coming from a satisfied subscriber of the big V. Yes, I do hate the higher prices, but the service does not drop one call for me at all. Never. I like the security. Better than paying 33% less and getting 33% less calls.
FCC...You my only friend
@(Unverified)
I think Verizon should send a response with a big red map that says, "There's not an app for that"
thank god someone is actually doing something about this!
it's been too long the tyranny of mobile phone companies
@VLangs
What tyranny?
Go buy your own phone and go for a prepaid contract, if you feel under their 'tyranny' for having to honor your own basic word when you sign a contract.
Consumers have a choice to avoid these fees. It's not that hard. You can get a prepaid phone with data and all that for $100 and monthly service for $45 a month. You are not being forced to take a highly subsidized Droid, but if you want to, Verizon wants an assurance you will repay their 'loan'.
@(Unverified) But the issue isn't one of Verizon getting its loan repaid - it's getting it's loan repaid and then a lot. $120 dollars with a month left to go? That would imply the phone itself was worth $2880, if the ETF is really just to recoup the loan.
And you can't come back at that and claim it's just profit either, because there's some legal mumbo jumbo protecting us consumers from blatantly absurd contract charges like that. It isn't like it costs that much for Verizon when we leave the network after less than 2 years, and the high cost only serves to remove consumer choice since there is no way anyone would ever terminate if it gets too high.
@(Unverified)
The whole idea of a penalty is that Verizon is subsidizing your phone $350. If you walk in month one then Verizon would take a $350 hit.
This isn't what happens today. Verizon is not subsidizing every feature phone at $350. Not even close.
@bjsguess : But then why not just buy the phone yourself, non subsidized, if Verizon (or whatever carrier, really) doesn't lower the cost enough to make it worth the engagement or the early termination fees?
I just can't say I blame Verizon for this. They allow you to get a shiny new phone now for less than if you bought it yourself. That's a strategy to get customers, so it makes sense that they then want to get you to STAY, or their marketing just plain fails!
It feels like people who would spend ridiculous sums on other gadgets just expect phones to be cheap/free for some reason o.O
@Lody If you would bother to understand people's comments, you would see that they don't disagree with ETFs completely, but would rather see them tweaked slightly. ETFs should be calculated based on the difference in the retail purchase price for a phone and what the customer pays for the phone on contract and then that ETF should be evenly prorated for every month so that by the end of the contract, every month has had the same cost. There is no reason that a contract should still carry a $120 ETF in the final month.
@NikAmi
What you're describing isn't an "ETF" it's a phone subsidy payment plan. People here seem to be confused about what a *contract* means. Just because a portion of the ETF is meant to recoup the costs associated with subsizing the phone doesn't mean the entire thing is or should be. Think about it - do you get to sign a contract with a gym and then decide that, ah, forget it, you don't want it anymore and therefore you should be able to walk away and be out nothing at all (in this case they didn't subsize anything so the remaining balance on that subsidy would be $0). You DESERVE to be penalized for walking away from a contract you are breaking, you sign up for that penalty at the time you buy the phone, and you have other options if you don't like it (month-to-month plans where you buy the phone at full cost, or TMobile's "equipment installment plan").
Not only that, there are other costs here that no one is bothering to consider when they throw around words like "loan". Are you paying interest on the principal they've advanced you when forking over the phone? You know that it costs a carrier money to have to pay the manufacturer the phone all upfront but wait 24 months later to be paid back that "loan," right? It's their cost of capital, which is certainly not 0%, the price you're being charged. If I did my math right just now (prob not) at a 10% annual rate over 24 months, a $400 subsidy runs the carrier about $40 in interest.
i wish the FCC would finally ask why data plans and text messaging plans are two separate charges.
@willowtwf
Plenty of people only use text and voice.
@(Unverified)
What you say is true. But, if you are already signed up for a data plan you shouldn't have to sign up for an additional text messaging plan.
@willowtwf
It's because they're carried over different types of channels. Text messages use available space in a control channel that's part of the non-data part of the wireless spec. Data happens over IP. The data pipe being charged in the data fees has nothing to do with the text messaging medium.
Now, that said, text messaging should simply be free because all a text message does is take advantage of usually unneeded space in a transmission that would therefore otherwise have been empty. The transmission is the same amount of data with or without the text message, meaning it costs carriers pretty much nothing at all to handle them.
@(Unverified)
yeah but how is it possible that they charge you $10 a month for asdf content, but you can download as much porno from xshare as you want for free...doublya tee eff essay!
@John H
That's the excuse the carriers give you when you complain about separate pricing. I'm NOT saying it isn't true, but the carriers always seem to conjure up some semi-valid excuse for increasing fees.
@TrueEddie I don't. Sprint's everything data plans include text, nav, and other data use.
@ThreeDee912
In this case I feel that while the data charge is completely valid because it did indeed (and still does) require carriers to implement lots of new infrastructure to support, text messaging is simply capitalizing (literally) on an otherwise unused part of a required fixed-length transmission -- incidentally, that's why text messages are limited to 160 characters. I have no problem with carriers charging for data so long as that money goes into expanding data coverage and/or increasing bandwidth -- looking at you, AT&T!! But I think text messaging fees are just pure greed. Not that that's new or anything.
I think they have the right to charge what they want within the confines of the contract. Why is Verizon being singled out? They all do this. If you don't want to sign a contract, go pre-paid. I think ETFs suck but I also knew what I was getting into when I signed my contract.
@(Unverified)
I agree.
I don't like to pay a large fee when I break my contract... but then, that's why I don't break my contract and my provider can make enough money to justify subsidizing my expensive (to them) phone. It's a good situation for everyone that basic contracts are free to make however you like, and enforced.
I considered prepaid phones, and decided I was willing to accept the ETF provision in order to get a cheap and advanced phone. If someone out there didn't do this, and wants a free phone and then to break their contract, then I guess the FCC is their buddy.. until the provider is forced to find a different way to make their justified profit.
1. Because Verizon's charges all well above the market average guaging customers.
2. The purpose of ETFs is to recoup phone subsidies, and a fee this high most likely covers the subsidy and then some.
3. The policy is not clearly defined as to which devices are applicable.
4. The proration is not spread evenly over the contract.
Verizon is and always has been a company hell bent on controlling device content, and charging for anything and everything. I used to work for them and as a person that uses their phone to the fullest extent, I want more freedom to use my device as I see fit and not to be charge for any imaginable fee VZ can dream up. Sure the network is good, but if you limit the way users can utilize it.... what good is it?
@(Unverified)
I think the reasoning for the inquiry is that Vzw's ETF jumped up so high. Now, I totally agree w/ the reason Vzw pushed it up so high, but maybe they should have gone a different route to solve the problem, like only having BOGO's on phones not so expensive, or only limiting those BOGO's on advanced phones to business customers. I mean, what would regular Joe Shmo do w/ two BBerry's?
@(Unverified)
while companies do have the right to charge what they want, there's certainly problems with the ETF system. I do agree that companies need to protect themselves for subsidies they give out, otherwise they would lose money, but it's the exorbitant cost (1.5x) and the randomness of the change that make this unfair.
First, let me say I support one thing from this: The ability to lower the ETF overtime, this should be the policy for all phones, though at some point, it should be equal to remaining cost on your contract.
However, the largest issues with this are that advanced devices and the cost are random. While it makes some sense that if you buy out your contract, you would pay more for a larger contract, but these devices (or some of them) don't require larger contracts. What's more odd is that with the advanced devices, you are NOT required to sign up for extra features (PDAs/BB do require them). Though, this isn't quite as accurate as you can change your plan's cost at anytime. The US has a history of protecting contracts. However, I think the contract only regulates the time commitment, not the price.
The other thing that these ETFs protect is the subsidy. Which carriers should have a right to make back. But these numbers are different for each phone, and this doesn't cover a subsidy of more than $350, assuming you cancel the next day (and keep the phone).
The other problem is a general lack of transparency of what this means for consumers. It's the same for all ETFs, but it should be more clear for a special case high cost.
The ETF should be redesigned to cover the subsidy of the phone. The carrier is covering the cost for you on the grounds that you repay them. Then, the ETF must also protect the contract. If you can bail on the contract with no penalty, then there really is no point to the contract. The monthly cost covers the subsidy (for a time) as well as for services. I think the ETF should cover the subsidy till you repay for it in month-to-month. However, a carrier would have to make some money for services (say 25% of the contract price). Then it needs to cover the rest of the contract, say all to part of the remaining cost. $350 is essentially 20% of the remaining contract price on a $70/month plan (middle-low of the road for most people), but the $120 is more than 100% of that price. Compared to a straight cost of $175, you cover only 10% at the beginning but more than 200% at the end. In reality a fair system would be between 10-15% to buy out your contract, probably on the lower end of that.
Let's use the Ominia as a basis for the plan that I think would be fair:
It's free on a 2-year plan with $459 subsidy, and the contract will be $70/month (minimum). Canceling the phone next day would be a cost of $459 plus $252 to cover the buy out @ 15% of $70 for 24 months. Yeah, that's a lot, but the first month you can return a phone for free. The next month would be: ($459-$52.50), the cost of the subsidy for the first month) PLUS $241.50 (15% of $70 for 23 months) for the remainder of the contract. On a $70 contract it would take 8.7 (so 9) months to cover the subsidy of the Omnia. At 9 months the ETF would be $157.50 for the buyout cost.
In reality, I think that a more fair ETF would be that 80% of the month cost contributes to the subsidy (20% service cost) and you pay for 10% of the remainder of your contract. The cell phone companies have a right to the ETF, but they should not gouge people, and I do not support any of them on this general pricing scheme!
I love you FCC...
It's a freaking contract. If Verizon wants to charge 6 million dollars for early termination, that ought to be their right. The FCC should not disable basic contract freedom out of some robin hood motivation.
Verizon could offer an alternative, $400 droid, for people who only want a$150 termination fee. But that's up to them. In reality, this terminiation fee is a core security in their business that enebles them to subsidize expensive devices. It makes the world better, in other words, and it's their basic human right to enter in to lawful contracts of any kind.
The FCC should concern itself with its actual mandate. We should make sure that its mandate is clarified so that I don't wind up subsidizing losers. That's right, I don't break my contracts. If my phone company (ATT, lol) has a bunch of deadbeats, they have to get their money back from me, or they have to rely on contractual obligations created for that contingency.
The federal government has drastically reduced the freedom of credit card companies to charge fees and interest hikes to deadbeats, which in the end, has resulted in higher fees and interest charges for those of us who don't carry balances or pay our credit cards on time. That's welfare.
Verizon is in tight competition with ATT and others, and we all damn well know it. If this is such a horrible burden, then their competitors would adapt and advertise their advantage.
@(Unverified)
The FCC's inquiry seems more like they're questioning the implementation of the ETF, not so much the cost itself. They're checking up on Verizon to make sure the consumer is well aware that they may have an "advanced device" and that the customer knows that they would be subject to the higher ETF.
@(Unverified) You're comment assumes that competitive markets exist and that the "better" company will win. However, did you stop to consider that in many areas, if you want good coverage, Verizon is your only alternative.
Contracts can help businesses in many ways, but stifle competition as well. If I am in a "contract" with Verizon because it's the only decent coverage I get, what motivation is there for another company to come in and provide better coverage in the same area. Customers are stuck in the contract for years and the competition can't find any new customers to pay for their new infrastructure.
@(Unverified)
The problem isn't that it's a contract. Verizon has every right to a contract, however they do not have a right to price gouge. Maybe they should be made to provide the actual cost of the phone. I bet, even for a Droid, that the phone isn't costing them $350 on top of the $200 already paid by the customer. I'm sorry, but there is a huge difference between what an item retails for and what a company actually pays for it. Also, say someone gets a "smartphone" that only costs Verizon $50 to subsidize, should you still be charged $350? NO!
As for your comment on the government reducing the freedom of the credit card companies...are you fucking insane. Clearly know nothing at all about credit card companies and their predatory practices. You're just the kind of customer they love..fat, dumb, and happy. Maybe you should educate yourself a little better on the subject. For example, it's not just dead beats that they raise the rates on. Also, the reason that people that don't carry balances pay more is because they aren't making the credit card companies any money by paying off balances monthly...duh. They're floating monthly loans with no interest.
Complacent individuals like you and most of the country who think all of this is ok is why this country is in the shape it's in today.
@(Unverified) Not everyone who defaults on a credit card is a "dead beat." That's a completely unfair generalization.
And once more the problem with Verizon's ETF is that it isn't designed to just recoup the cost of the phone: if it was, it wouldn't be so high in the 23rd month. Verizon has every right to charge an ETF in line with the numbers they need to get back the value of their loan if you break the contract, but this goes beyond it. I'm not sure why you are in favor of ETF's that could be so high, because they both lower competition since you can't feasibly switch carriers, and they harm the consumer.
You are correct that it is a contract, and that there is responsibility. That also means Verizon has an end to uphold in terms of service, and if they don't, and you can't tell them that with your wallet because the ETF itself makes them more money than your contract is worth by the end, then what sort of contract is this?
And how does subsidizing phones make the world a better place?
@(Unverified)
Hey, look, someone who who is actually looking at this from an intellectual point of view and not just pissed because they can't geek around with their phone and try to weasel out of their contract whenever the wind blows a certain way. Kudos.
@(Unverified)
He's right. Verizon should be able to charge $6 million for the ETF, $100,000 a minute for phone use, and a trillion dollars for monthly fees, as long as those charges are very clearly spelled out. Personally, I think I would use other alternatives, but they should have the right to charge what the market will pay. A cell phone is not a right. Get a land-line or a prepaid phone if you can't afford the prices. I can't afford the prices, so I don't have the new phones with the expensive plans, as much as I wish I did.
Getting the government involved sounds like a great idea, until you realize that every bureaucracy finds ways of perpetuating itself, expanding, increasing costs, and increasing it's own power. I don't know why this is exactly, but if you could point me to some shrinking government agencies, I'll gladly reconsider my theory.
Study economics and history, or enjoy your bread and games.
This how the ECF (Early Cancellation Fee) works in Canada on all carriers. Except its up to $400.
@Sneakz Which until recently was well under $350 US dollars.
@Sneakz You gotta pay for that "Free" Healthcare somehow.
@Sneakz
Except you forgot to mention the $400 was only on the voice portion. Data is another $200 min. Also our contracts are 3 years, not 2 years
@Sneakz I'm with Telus, and they dont have a max. its 20$ per month. >
@(Unverified) my rogers contract Early Cancellation is $20/month up to $400
I don't see the big issue here, especially since our phones our highly subsidized and the carrier gets their money back buy us sticking witht he plan. It is just going to stop people that cheat the system that get a new and expensive phone, stay on a cheap plan for a month or so and ditch by paying the ETF to get a phone on the cheap(er).
Verizon ETF lowers with each month, which I recall, they were the first major US carrier to do it. It sucks for people that have a legitimate reason for leaving the carrier, but there are also outs to get out free and clear like moving.
For most of us, this really will never be an issue. If you don't like it, but you need the latest and greatest phone, why don't you just pay full price for the phone? You won't have to worry about the ETF then.
@(Unverified) Since I have been an international consumer as well as a local one, I would say this, the markup Verizon has on the phones based on full prices is fairly high compared to international purchases and compared to the marketplace.
Why should you pay a "higher" full price when you are at a verizon store?
This is probably my biggest complaint with Verizon. Nice to see it might get addressed.
Can they also tell me why my "Unlimited" data plan is capped at 5GB
@cottrell88
According to the reps in my local store, it isnt. At least not on the Droid, the Droid Eris, or the Omnia (when they told me it wasnt on my Droid, I was curious to see what they would say to other people, so I asked some friends to check as well).
I found this odd, since the rep where I actually bought my Droid told me it was. However, it wasnt just one rep at my store that told me it wasnt. Several of them said there was no cap, including a manager. They also told me to come in if for some reason I got charged for going over, or suffered a lack of quality in my service for going over.
So far I am WAY over (22gb!) and have had no issues. Nothing extra on the bill.
Just my $0.02. Maybe (hopefully) policy has changed.
Right... so companies should just be left to their devices to do right by consumers. We have all seen how well lax regulation worked in banking, energy, and other sectors.
A fair policy would be an ETF that covers the subsidy ONLY... not $200, $300, $375 flat amount to recoup undefined "losses". In addition, the ETF should be prorated down by the amount of time that has passed on the contract because the carrier makes the subsidy back in service fees.
I prefer an FCC that questions companies on their policies and ensures consumer protection.
@(Unverified)
Really it boils down to the government looking at two solutions:
1) Increase their oversight and regulation
or
2) Break up the telecom companies (cable companies in particular) to increase competition in most markets.
The issue with wireless companies is they have to buy spectrum from the gov't, so I think they'll have to look at the first option.
I honestly think the ETF should be equal to the discount you get on the phone. So if you pay 200 for a 500 phone, it should be 300.
But...
It should also be a true pro-rate, so the 300 above should be divided over 24 months and go down by that amount after each month. So after 23 months the early termination should only be 12.50 in my example.
@TrueEddie
But would you ever pay $500 for a phone? Does any phone actually cost anywhere near $500 to make? An 8gb iphone 3g is $600 with no contract, but an 8gb ipod touch, with nearly identical hardware besides the lack of the phone, sells for just $200. If the ETF was the price of the phone minus the subsidized price, we would still have huge ETFs because the price of phones is so inflated.