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
@ThreeDee912 You said it. Once upon a time there was a company called Aerial, per second billing, no rounding up to the nearest minute. Love that, loved them, sadly they were bought up by VoiceStream and the rounding began again.
With VoIP + WiFi (or Ethernet when at home direct connected) its all free. Buy a phone number (SkypeIn ($60 discounted to $24 with right plan) and buy unlimited phone calling $3 per month and you have a phone connected 80% of your time (home + work) with a simple residential (running DD-WRT software of course) firewall / router costing between $15 - $100 per unit.
Put one of those babies at home and get the powers to be at work to allow for a FREE WiFi hotspot and you have phone calls via VoIP for most of your time. And to be honest you should not be talking on the phone in the car anyway.
A $100 throwaway prepaid phone for emergencies only covers the last complaint! If you really must have that.
I love the new FCC.
The only reason Verizon should be charging $350 for an ETF is if they give me a $350 rebate on my phone while still charging me a competitive price for the original phone. Verizon is not doing that.
Koodo's method (in Canada) is fairly transparent, although the $150 limit is too low: http://koodomobile.com/en/on/tab.shtml
Straight Talk from Wal-Mart. why would anyone do anything different? because on contract there are fancier phones? nope. i'll pay $45 per month unlimited everything. i switched from sprint and do pay $45 per month unlimited everything. as long as their customers are suckers, i guess it'll continue.....
Maybe I just don't get early termination fees, but it's my personal belief that your ETF should be dependent on your specific phone. For instance, if you get a Droid, it's $200 after rebate, but it's $560 if you decide to go month to month. So the ETF should be $360 from the start. By the time the 2 year contract is over, the ETF is irrelevant, so it should lowered an equal amount every month until it gets to zero. So for this, you're looking at it lowering by $15 a month.
On the other hand, if you get a free phone that's $150 month to month, your ETF should only be $150. The only issue here is the question of whether or not these phones are worth their month to month prices, and there needs to be some way to regulate that. Is that an FCC issue? Or is that just not doable?
I have no problem with having an ETF. I've never had to pay one before because I stick to the end of my contract. I know how much these phones cost to make, and I know how much it would cost to sell them as is. I realize these prices are inflated, so are the ETFs, and so is the service, but I get that not everything's free. My issue here is that the ETF doesn't drop to zero by the time your 23rd month rolls around. That's the ridiculous part.
@kenny goo They (phones) cost allot less than you realize. These companies are purchasing these phones at wholesale volume discount prices and marketing them up to over Retail prices and locking you in with these outrageous fees. Some of the handsets that they sell for more than $300, cost them less than $50. Don't believe me, check for yourself via http://www.mobilecityonline.com/ and PriceGrabber (http://electronics.pricegrabber.com/cell-phones/p/327/st=category/).
Also google online for the "true cost of cellular handsets" as the breakdown I saw a year ago, showed a $500 plus handset broken out by module, their cost was less than $40, closer to $30 if memory serves. You will not find that without searching for it.
Personally until cellular companies stop their predatory Customer-No-Service business tactics and practices I will stick with the Nokia Nxxx (N770, N800, N810, N900), Linux, VoIP and WiFi for a Total Cost of Ownership of $100 per year for service, after the price of the handset.
They mistakenly believe you will not leave cellular, thus you have no choice. I did over four years ago after a second cellular company in over 10 years attempted to put excessive charges on my bill for services I did not consume. You would think they would want to keep a customer paying over $100 per month for service and remove the charges that I could 'prove' were not mine. Their customer-no-service response was sorry you have to pay up. Questionable but legal extortion. Big mistake and a huge failure on their part.
Trust me, these handsets that Americans are paying $300 - $500 for cost them less than $40 in bulk and they put these insane vendor lock-in fees on top of it to prevent you from churning. Just purchase your phone direct (still expensive) from Mobile City Online (link above) and avoid being forced into a 1, 2 or 3 year contract for service, such a contract is always tied to the new handset purchase. Just make sure you purchase the right handset for the service in your area.
The reality is that all they have to do is provide decent customer service to retain customers, but they fail at even this. Just stop buying service from them.
@cbemerine
Well like I said, I realize that phones, plans, and ETFs are all price gauged, and while some of these $300+ month to month prices may be on phones that only cost $50 to make, I hardly think that a Moto Droid, with all the features they have on that, is one of those phones. I'm sure a $560 month to month price is definitely too high, but it's no $50 phone.
The problem here is that I only really have two viable options here: I can get a subsidized phone on a major carrier, or I can get a phone that can do Skype with a carrier that can give me cheap unlimited data. There's no in between. I don't have the option of buying a phone unlocked or unsubsidized on a regular plan because I'll still be paying the same amount I'm paying now. That's way to expensive with the extra price of the phone just to avoid an ETF.
The other option like I said is to use Skype. Problem here is I need to find a phone that can run Skype, and is good, and a carrier that has an unlimited data plan that's cheap, fast, wide spread, and reliable. Most of these Nokia phones, which can run Skype, lag way behind stuff like the Moto Droid in my opinion. They're bulky, their screen are terrible, and their keyboards are a disaster. So I need to find a QWERTY that works for me. Then I need to find that unlimited plan I've been looking for, and make sure my phone has compatible frequencies.
The fact of the matter is, I'm a pretty well versed tech head, and even I am having a problem working around the system these carriers have set up. I just hope that over the next few years the FCC will step in a little bit more and in time we'll get more competitive pricing.
How if they can
Folks, if this is something you really care about, fire off a quick letter (it can be a form letter) to your elected representatives.
Your name, a single sentence. That's all it takes.
We need the FCC to seriously look at the business practices of the US Mobile Telecoms
There is an issue with ETF's and poor service.
Look at AT&T and the iPhone connection debacle.
After a year of sticking with it, and trying to deal with their crappy service, a sane customer would want to jump ship. The ETF is going to keep them from doing that. AT&T is literally in a position to say "Sorry, we screwed up, but you have a contract with us and there is nothing you can do about it."
@StaticDet5
Yep, the carriers do have a right to the ETF, it's a contract and protected by US law. But the consumers have a right to fair service that they were offered it. I hate ETFs and unfortunately, I don't think suing for bad service is practical (way to many variables for bad service…), but something needs to be done. Most contracts I believe include a clause that doesn't guarantee service as allowable without being sued for false advertising. (All the maps say there may be inaccuracies.)
As irritating as the ETFs are, I have to wonder if the little $1.99 dings from accidental access to Verizon's Mobile Web service shouldn't really be the problem here. If you go to cancel your contract and Verizon sticks its hand out and asks you for three figures to implement that decision, you know that it's coming and can be prepared to go to bat over it. But with the hodgepodge of random taxes and fees scattered all over the average cell phone bill, I'd wager that few consumers notice the smaller charge(s), and just pay it/them without thinking.
Now if the FCC could just establish Minimal acceptable sustained bandwidth guarantees and a higher minimum synchronous definition for broadband:
1) Minimal acceptable sustained bandwidths (both upstream and downstream) guarantees for a service to be considered broadband. In other words not the Speed Test numbers (16MB / 2MB) but the actual service numbers (I am throttled back to very low levels on a regular basis). I would accept 80% of those advertised / promised Speed Test numbers, but the Cable company will not even promise that. In fact they ignore the fact that you are throttled, restricted, limited as soon as the Speed Test finishes. If you use DD-WRT open source Firewall/Router software you see this in real time, 24 X 7.
2) Minimal Synchronous definition for a service to be considered "Broadband". I would settle for the year 2000 figures of 100Mbps / 100 Mbps (costing under $55 per month) that other countries had at that time. Of course by 2006, many of those countries had 1 Gbps / 1 Gbps for lower amounts (under $52 per month). At least in non USA markets, economics seem to be working unlike here in the US. One thing is for sure, the current 768Kbps definition for "Broadband" is way too low.
There is hope:
A) Greenlight; Wilson N.C. (Fiber to the Home, FTTH) (100/100Mbps)
B) Utopia; Utah (User owned Fiber)
C) You getting local politician support for Fiber to your home and your neighbor's home.
.
I guess I won't ever be switching to Verizon
Hmm, maybe having to wait until Feb for a new phone/contract isn't such a bad thing after all. The ETF might come back down before then.
At any rate, I don't see anything here suggesting the FCC is about to smack VZ around. It looks like they are trying to understand how a customer is supposed to be able to determine what his ETF is.
Interestingly I haven't seen the anti-government, or extreme right wing, or small government commenters about how the government should stay out of our contracts (that are ripping us off) and out of private business. Where is the "keep government out of my life" crowd on this issue?
Glad to see the FCC is looking into it, but I wouldn't expect any changes. Just an inquiry basically. Practically speaking, this was a dumb move for Verizon. Anyone teetering on the edge between iPhone and something else on Verizon might just as well go to AT&T now. Personally, I was thinking about grabbing up an iPhone and switching to ATT so I could wait and see what comes out new on Verizon next year, then pay the *somewhat* reasonable $175 ETF on AT&T (which is made up by selling the iPhone anyway) to go back to Verizon. Much more difficult to do that the other way around!
@berrymedic20 Even better pick up a Nokia N900 install a DD-WRT enabled WiFi firewall/router both at home and at work and do away with cellular all together. Even an iPhone can not compete with a Linux computer "smart" hand set capable of making phone calls. With the Nokia N800 the sound was so clear you could hear a pin drop. I am sure it will be the same with the Nokia N900. I never owned a Nokia N880 or N770, but guess the sound was good on them as well.
Think of a sorftware application that you would like to run on a cellular phone or iPhone and chances are you can find a Linux open source app that will run on the Nokia N900...best of all worlds!
If only Nokia would market it better. Full web browser, just like you are use to on your netbook, laptop and desktop PC, just on your phone! You will love it, I know I do with my Nokia N800!
Best of all, Total Cost of Ownership (TCO) is less than $100 per year (after cost of hand set of course)
bureaucracy that works, c'est n'est pas possible
I do agree that $350 is much too high of an ETF but I am scared for the day when the FCC makes phone companies lower is so much (or get rid of it all together) that phone prices go up. I don't know about you, but I don't want to pay $600 for a phone. I would much rather just stay with my service provider until my contract is up like a responsible person instead of crying about the fee for getting out of a contract.
AHHHH i hate cell phone companies ETF... WTF
why do i even have to get into a contract with yo ass to begin with
why not a LGW contract . etc
This makes no sense..
GO FCC FTW
The iPhone 3GS carries a manufacturing cost of $178, lets assume Apple makes a 50% profit which would be nuts but go with me. So $267 is what it would be. It is highly likely that Verizon's phones are the same or less than $267 Verizon cost.
Lets just call this $350 ETF what it is. A snake in the grass way to get you into and to stay in a contract and keep paying them service fees. Before it was "please don't buy an iPhone", now its "buy an iPhone silly people, we dare you".
@UnsilentMajority
You may be stating some numbers you saw off a website, but those website fail to mention many different aspects of the business. The iPhone 3GS may cost $178 in labor and parts, but how bout taxes, FCC approval fees, R&D, marketting, or even customer service? There are lots of costs involved in developing, marketting, and releasing a phone, not just parts and labor. It's hard to even put a number on R&D since there are so many factors and companies involved. Keep in mind also that pricing is very important in determining premium products and services separate from lower end ones. The iPhone, for example, is marked up because Apple is a bit greedy with their share of profits(Taking a chunk of profit on the device as well as taking part of the data feature). The point is that Apple sees their product as a premium product that they can charge premium prices for considering the amount of work put into developing it. Now if someone buys a phone at $200, rather than $400-$500, and then cancels, the carrier just lost a very expensive device, the costs it takes to get it up and running, and it hurts their churn. You also don't mention the cost of training the people who help you when you have a problem (customer service reps, in-store reps, and even third party dealers).
Cancelling also makes them look bad to investors. The rate at which people cancel their service is called "churn" and high churn rates result in less money from investors. Again i say that the carriers don't start seeing profits until after about a year. That means they're at a loss until the customer hits their subsidy.
No offense, but you sound a bit confused, or misinformed rather, when it comes to the wireless industry. Verizon charges whatever they want because they know they can. That doesn't mean they're allowed to change your rate from $50 up to $100 without some notice and a chance to cancel your service without a penalty. I cancelled my service with Sprint for free because they raised their rates by $0.75. This is also where T-Mobile capitalizes on the lower end of the market. It's not "stupid" to buy a higher quality service at a higher price. We see it all the time in every business. Why do people drink starbucks? Why do people buy ferrari's? Why do people buy homes that cost $20mill? People buy it because they can and they want the "best". Best is a very relative term that's tossed around. Some carriers can't come close to VZ's coverage, but give their local area some very competitive rates. So this "boom" you talk about has been going on for ages. T-Mobile's bread and butter is the lower - upper middle class and thrives in urban areas. Nationwide, they may have worse coverage than any tier 1 carrier, however in the areas they cover, it's really not that bad.
Once again, this is not to offend anyone but rather to inform you of how the business works and where these "numbers" come from. There are many people employed by the company so yes, they make a ton of money, but lots of people forget that the operating costs are also pretty high up there. There are also lawsuits to settle which may increase pricing again if let's say they have to pay royalties for a certain technology(ie. visual voicemail).
Nothin but ignorance. Verizon has EVERY right to charge $350 ETF to people who cancel in their first month of contract. It's a fact that these carriers don't even see profits for almost a year from when you initially sign your contract. Then they subsidize their devices even more since they're required data. Would you rather pay $400-500 for your phone or $100 for your phone? Without these ETF's, people would take the subsidized phone price, break the contract, and VZW and the like would go out of business. VZW especially makes sure their customers understand that they're a business; Not a charity. Verizon is simply trying to retain customer base while keeping their ARPU up for their investor relations. If you don't want to lock yourself in to a $350 prorated ETF, go find a carrier you can afford. Maybe we should sue lawyers next for overcharging? How bout doctors and hospitals? Or even contractors. VZW has a profit margin to keep just like every other business i mentioned, and with people breaking contracts at an all time high, they need to slow it down.
@tmobin
How much is the subsidy and for what phones? On the At&t side of the fence the iPhone 3GS manufacturer cost is $178. So how did they arrive at the $350 mark? What phone carries Verizon cost of over $350? If you are claiming Verizon takes a hit to the bottom line then how much of a hit is it exactly? If somebody A: Purchases a phone for $199 then pays one month of service with data plan, then cancels, how much does Verizon take it in the shorts?
With that said you are right about one thing they can charge consumers whatever they want and can choose to pad their profit margins in any way possible. Of course only a stupid consumer would sign up for something like that so the jury is out on whether this was a good idea for Verizon. I am betting this will be a boom for other carriers considering the demographic of the people who would be buying "advanced devices" whatever the hell they are.
Thank everybody for their on-topic comments, but... if Stephen Zipperstein doesn't sound like a stage name for an Israeli male stripper, I don't know what does.
Another thing the FCC should investigate is why does Verizon charge so many "fees", and make group them with the taxes?
The fees are not taxes, but are fees charged by the government to Verizon, and not the consumers. The "fees" should be included in the monthly charge, and then taxes added on, if Verizon wants to charge those "fees" to consumers. This is fraud to group "fees" and taxes together because the majority of people think they are taxes, when they are infact not. The taxes are actually minimal on cell phones, and the majority are 'fees' Verizon is passing on to us. For example, if the monthly is $40, fees are $7, and taxes are $3, then they should just say monthly charge of $47 +taxes, similarly to how one purchases something from a store.
Verizon Wireless posted $58.6 billion in revenues last year. They make enough money. They have been playing the nickel and dime game for a long long time. The FCC needs to look into other aspects of Big Red's business model. When they dropped the $5 a month mobile web for $1.99/mb, i thought that was a mockery of a sham. However, I have been with VZW for 7 years and i have had minimal problems. I wish they would be less restrictive and of course cheaper, but Ill pay a premium for service. Remember, there's a map for that :0
@mooler
Honestly, it was a terrible thing to do to their customers, but keep in mind that wireless is always changing(and vzw wasn't the only one to hike their data pricing). Notice how fast everyone just came out with unlimited plans. The FCC can't look into their business model because it's ever changing with the wireless industry. Every wireless company is doing what they can to take and keep their profits. I figure VZ saw people going into forclosure and thought "hmm.. If they can't pay their mortgage.." Atleast with a $350 ETF, they can sell it to a collection agency at a discount. I've settled mine at 40% so i'm sure it's sold at a very reasonable price.
@mooler
Honestly, it was a terrible thing to do to their customers, but keep in mind that vzw wasn't the only one to hike their data pricing. Also notice how fast everyone just came out with unlimited plans. The FCC can't look into their business model because it's ever changing with the wireless industry. Every wireless company is doing what they can to take and keep their profits. I figure VZ saw people going into forclosure and thought "hmm.. If they can't pay their mortgage.." Atleast with a $350 ETF, they can sell it to a collection agency at a discount. I've settled mine at 40% so i'm sure it's sold at a very reasonable price.
That is awesome! You all know that in governmental/bureaucratic terms that can be translated as "we'll give you an hour to explain this."
Oh, the FCC...I think I'm in love.
yes the gov has finally stepped in! i emailed their corporate office about the new "etf" fees and of course their response was full of manurer. their definition of an advance phone is pretty much every phone that is going to be released from now on out! these mofos sure are greedy! over ten years of service and no slack.
Does anyone know if since i bought my Droid Eris from VZW on Nov. 6 [release day], if i would be charged this fee? Just wondering since it went into effect, supposedly, on Nov. 14th?
@willowtwf
I wrote VZW's CEO in an email, and one of his minions called me directly back, and i asked him the same question. Why do you charge two fees for text messages, and data, when theoretically text messages are based on data?
This guy said it was because text messages are sent over their voice network, which is based on the older generation network, and Data is sent over the 1x, and 3G network. He also told me once they finish the completion of the 4G LTE network, it would hopefully change.
As a Canadian im impressed the FCC step in, compared to the CRTC up here, that does nothing to help consumers.
Looks like Att isn't the only greedy one here now.
Why not just scrap the ETF all together and make people pay out any outstanding amount on their contract if they want to leave?
How it works in the UK:
1. Get the handset free (iPhone, N900, anything)
2. Pay $60/month equiv. for 12-24 months service. The real cost of the service is about $20, but they subsidise the phone so you pay the extra. It's essentially a hire purchase.
3. At end of contract period get free upgrade to newest phone.
The upgrades are always there because otherwise you'll just leave and go with another operator. As I said, if you cancel midway in your contract you have to pay the remainder.
Sign the contract and be bound (or damned!).