Verizon to FCC: hey, you said ETFs were okay!
By Chris Ziegler 
posted December 18th 2009 3:50PM
posted December 18th 2009 3:50PM
- The company justifies the advanced device ETF a couple ways; it starts out by referring to some 2003 statements by the FCC in which the Commission says that it doesn't support the concept of customers breaking contracts and that carriers have a right to recoup those fees. Of course, that really doesn't drive to the point here, which is that Verizon's now charging two completely different ETFs based on a rather arbitrary line in the sand drawn by Verizon; to that end, the carrier says that the additional cost it incurs to procure the devices on its advanced list is greater than the difference between the two ETFs ($175) on average. It also says that it needs that extra guaranteed revenue to keep its broadband network up to snuff, since advanced devices are more likely to strain it.
- Regarding the weirdness at the end of the contract -- where a customer still owes $120 23 months into a two-year deal -- Verizon says that it's still losing money (read: we should be thankful they're prorating at all). As an example, it says that its average loss for a customer canceling 12 months into a contract is about double the $230 prorated ETF on an advanced device, and that statistically speaking, customers are far more likely to cancel early on than late. While we don't doubt that, we think they're trying to divert the conversation here just a bit.
[Thanks, Daniel P.]
@ThreeDee912
You might be right that a phone doesn't cost that much to make but what you fail to realize is that at&t doesn't make the phone, apple does and apple will charge at&t whatever they can get for it.
Surely you don't think apple should sell it's products just to make even?
"Verizon Wireless incurs these costs with the expectation that
customers will enable Verizon Wireless to recoup them over time. Indeed, a customer with an
Advanced Device on a voice and data service plan typically agrees to pay substantially more in
monthly service fees, as compared to a customer with a more basic phone on a voice-only plan.
The new ETF structure with an ETF starting at $175 for regular devices and at $350 for Advanced
Devices reflects these differences."
That whole fucking paragraph contradicts the rest of their BS statement. If the ones who use advanced devices ALREADY spend more per month, then we should be convering more cost and NOT have that large of a difference in ETF fees. And what the hell is with advertising/commision etc costing more for advanced devices. That's YOUR problem V, you want into the game you pay the fucking costs assholes. You don't get to trickle EVERY single extra cost down to us SIMPLY cause you want into a game you were invited to years ago, but were to stupid and greedy to get into. I hope the FCC fucks you over hardcore like you fuck your customers over.
@TWiz
Saying that Smartphone customers are already raeped in voice and data fees, then saying they are the ones with the most churn (they didnt say it directly but implied it), and finishing with saying that their extremely high ETF reflects the smartphone user TOTALLY is bull.
If a smartphone user is paying more, why isnt Verizon doing better accounting and setting aside some profit for the upkeep of their network? Are they assuming normal voice customers with dumbphones will be picking up that tab? And lets also point out that if you are a Smartphone user, you are more likely to KNOW YOUR PLAN and keep it under control, thus negating the fact that you had billing errors and disconnect and churn to another company. So, really, the voice customers, with dumbphones are actually a majority user base that are doing this.
If Verizon wants to play the "BOGO" game and people sell their second phone for $500 and pay the $175 ETF, then maybe Verizon should have a policy that states "Primary line and FIRST DEVICE (no device swapping for other makes or models within 12 months), pays $175 ETF, Second Line if Advanced Device pays $350 if deactivated within 12 months, or prorated fee of $350 for the next 12 months of a 24 month contract" THAT WOULD WORK
The suff shirts want to beef up there bonuses
I hate Verizon, paid the $175 ETF a year into my contract when I jumped ship to get the iPhone, and I'm part of the class-action suit against them.
That said, I think they're entitled to recoup their subsidy fees when you terminate a contract. However, the fee should be somewhat based on reality. The 2-tier system is almost as arbitrary as the flat-rate system. Why not do some basic math to figure out how much of the device the consumer has not yet paid off, slap on a certain % fee on top of that, and call it a day?
@UnixSystemsEngineer
I concur with what you're saying. However, if what Verizon is saying is true about not selling phones at the 'real' unsubsidized price, then they should start selling phones at the real unsubsidized price and then prorate the phone to $0 by the last month.
Also, I wish a cell phone company would offer a lower monthly rate to customers that do not buy a subsidized phone...
Lastly, I do feel that the pricing schemes of all the wireless carriers have little transparency--that should change.
@UnixSystemsEngineer
This seems like a pretty simple exercise. Just make the process transparent.
If Verizon's real cost for the iPhone is $500 (what they will actually pay to Apple for the device) then they sell it at $200 - well the subsidy should be $300. You take that $300 and divide it by 24. Every month the ETF reduces by that pro-rated amount. Verizon is completely made whole when a contract is terminated during the 24 month period and the consumer is protected from outrageous and punitive fees.
In essence, the subsidy acts as an interest free loan from the company to the consumer. And while the company isn't receiving interest on the loan they do receive the benefit of having a customer paying huge amounts in data and voice fees.
Consumers and cell phone companies are both protected under a rule like this.
Koodo in Canada has it right (not that I'm with them though). They have the "tab", where you they give the phone on credit, and every month of service you have deducts from your tab. If you stop your service before your tab is paid off, that's what you owe. It's simple and straight forward... I guess that's why they're the only ones doing it.
The other solution is having strict credit requirements for having a cell phone account like they used to do. People with higher credit scores are less likely to cancel a commitment and any cancellation should impact your credit as though you decide not to pay a debt or any other obligation.
@DBX00
This isn't about debt repayment. Common reasons for wanting to switch:
-- New job, new home, etc all are in an area where you receive poor or no coverage. Happened to me 5 years ago with Verizon. Because their map showed that I should have coverage I was not exempt from an ETF.
-- The device breaks or is problematic after the initial 30 days. This is especially true for a company like AT&T where many people are subscribers for just the iPhone. They may not want a different phone in AT&T's stable if the iPhone sucks for them.
-- Your company provides with you a cell phone/data plan. This has also happened to me.
The list can go on and on. We aren't talking about not paying your bills or not living up to your contractual agreement. The fact is, that no matter how careful or prudent you are, there will be occasions where you need to break your contract.
@bjsguess Those are valid reasons for breaking a contract, but what's stopping you from recouping the ETF you paid by putting your old Verizon device up on ebay on getting 200, 300, even 400 bucks for it? You still lose a little bit, but most of the time it works out pretty close.
People aren't understanding that with paying this ETF you're also left with an asset that has a pretty good amount of value still. I can see how this appears misleading and personally I just wish Verizon wouldn't subsidize handsets so much that it needed to do this, but they've made their choice and I really don't think it's that big of a deal unless you were trying to beat the system.
How about we just make them come clean and prorate the ETF for what Verizon actually paid for the phones over 24 months... (never happen)
or how about a flat 5-10% reduction of the retail price per month?
@Niceguy4186
Verizon is not a phone wholesaler, they deserve to make a profit on the phone, and the service. Demanding Verizon provide you with a phone at wholesale is absurd. If the phone is too rich for you, then don't buy it.
My beef with Verizon is their proration rate. You shouldn't owe $120 at the end of your contract.
@ptsube Verizon is not in really in the business of selling phones, they only do that to sell the service. But anyways, then how about a reasonable markup of the whole sell price...
@Niceguy4186
I say, let people buy the phones they want, then take them to the carrier they want. No more subsidizing, and ETF's.
The trouble is that carriers should be selling service, not phones. Subsidizing phones in order to retain customers on a EFT is bad business.
@Hexydes
Exactly, why does an 32GB iPhone 3GS cost $300 subsidized while an almost identical iPod Touch costs $270 upfront.
(I know this is about Verizon not AT&T, but the iPhone is the easiest comparison)
@Erb I know, I'm not @Hexydes but here's the deal ... Apple probably convinced AT&T to buy the devices at, say, $500, with the expectation that consumers' data fees would recoup that difference and more. Basically, AT&T made a poor decision, gambled with our money and stuck us with the loss. Hey, just like the government and big business!
Did they say this was a letter from Verizon or Vizzini?
Consumers: Truly, you have a dizzying intellect.
Vz: Wait til I get going! Now, where was I?
Phone's should not be complicated contracts, think of the insanity of signing for 2 years for something like a phone. The problem is that being responsible and actually paying for your phone doesn't help in the USA, in fact it's often to your detriment unless you know how to work the angles and lie to providers. A great example is ATT's $15 internet plan, which is unlimited like the 30 dollar except they only let you use it with dumbphones. Basically it's the same speed and coverage and network, and internet, but they charge half because they think your phone sucks enough that you won't use it much. That's basically proof that they're full of it. The FCC should just eliminate subsidies and make everyone just pay for the phone, they should require that all CDMA phones should work on all CDMA networks and provide some semblance of the same law for GSM (though it isn't as needed). Then Sprint and Verizon would compete on price and coverage and devices would be sold through any retailer that can carry the devices. If providers hate eating the cost on people canceling phones why not just stop selling so many in store and letting people bring their own? Because contracts are how they make all the real money they just are being greedy to try and stop people from reselling. I'd be willing to bet most phones that unlocked currently cost 600-1000 would only be around 300-400 under this system. Phone plans would likely go down as well, A cell phone should cost 50 bucks a month.
@ NickyP
So you are saying that people that own the Samsung a237 use the same amount of data as someone with iPhone and ATT charges $15 more for the iPhone just because?
@Mentat Well, seeing how your name in Mentat, I'm sure you possess the mental faculties to realize what's happening here. The United States doesn't really have real options when it comes to wireless access. Verizon/Sprint/Att are the only real choices, with most of the others being aimed at people willing to sacrifice service, quality, phone selection in order to gain a cheaper monthly fee or some other deal. So most people generally pick one of those 3. However, devices are either technically complicated or completely incompatible so, once you sign a 2 year contract, if you break your contract the phone has no value except for resale. By raising the ETF they effectively negate a small loophole for resellers, but more importantly they make cancelling a phone contract completely insane for the typical consumer to do. Then in come the cynics, "Why not sign up for a pay as you go and buy the device outright, that way you can cancel without charge and sell the phone without the phone company footing the bill? I'd be happy to, show me a reasonable pay as you go data plan? Oh wait, there is none. What about minutes that expire after a certain amount of time even though I haven't used them? There is no way to explain these practices as anything other than legally sanctioned monopolies over an increasingly important device. In the 90's a cellphone was a luxury for the fairly affluent, but now everyone should be able to have a perfectly working device without paying a fortune. If the FCC doesn't step in they are failing at protecting the american people from insanity such as early termination fees and $20 unlimited texting plans. Not to get too far off rant but how can they still justify charging this when everyone basically proved they were full of it on this? Collusion is an ugly thing in any market, but hopefully the FCC will stop giving out fines and just give americans back their money.
An ETF should be the value of the phone if they were to sell it off contract, minus what you paid for it after rebate. Then it decreases by an even amount every month to zero until your contract is up. Though before this happens, they need to lower the ridiculous off contract prices on their phones.
I'm sorry, but tech wise, the iPod Touch proves these phone prices are just stupid. The only differences between the Touch and the iPhone is the mic, camera, battery life, and mobile broadband. The prices aren't that different either. An 8G 3G is $100, and an 8G 2nd Gen Touch is $200. The 16GB 3GS is in the middle at $200, but both the 32GB 3GS and Touch are $300.
Point is, even if you add into the 3rd Gen Touch the 3GS hardware features, you wouldn't get anywhere near the price of an off contract 3GS, which I hear is like $600 for the 16GB and $700 for the 32GB. To give a good comparison, the Droid is $200 after rebate on contract, but off it's a ridiculous $560, and there's no way the phone is worth that much either.
Point is, if you drop the ridiculous pricing on unsubsidized phones, then ETFs can work on a phone to phone basis, and work properly. They're SUPPOSED to make it so that they can give those who can't afford an expensive phone a chance to get one, but get the money back through the contract. This way the unsubsidized prices are through the roof and the ETFs are so high you're forced into a contract and wont leave.
It's an anti-consumer business practice. I'm fucking sick of it.
@kenny goo
you didn't mention anything about the licensing fees involved with making a GSM phone. the extra R&D that goes in to creating a GSM product that doesn't intrude on any of Nokia's patents and the extra cost involved with designing a product that has 2-3 times as much functionality as a simple mp3 player.
Look at the comparison between an old Palm Pilot vs the old Palm Treo's.
Its like this for all phones not just the iPhone. I would love to see the difference in price for something with a free OS like a price comparison between an Android MP3 player vs an Android Phone.
@Mentat
I see your point, but the difference between a 32GB 3rd Gen Touch and an off contract 32GB 3GS is NOT $400. Period. No amount of licensing is gonna change that.
@kenny goo
Do you think its wrong that someone can purchase a Chevy Malibu for $20,000 or they can buy a Cadillac CTS for $40,000. I mean they are both made by GM but the Cadillac doesn't cost $20,000 extra for GM to make... people buy the prestige that comes along with having a Cadillac. This is the same reason Apple charges extra for people to purchase the iPhone. Yes the iPhone includes all the features of the iPod touch but also adds the luxery of saying i don't need a phone and an iPod I have both. If you cant pay for the Cadillac then go get a Malibu, if you cant pay for the iPhone then go get an iPod
@Mentat
So the reason why an unsubsidized iPhone is so much more then a comparable iTouch is so people can brag about how they don't need a cell phone *AND* a portable media player, they can get them both in one device?
You're kidding me right? That's the stupidest thing I've ever heard.
Phone ETF are there to take advantage of the consumer - Plenty of companies take a loss on hardware because they have other revenue streams. Ex. Sony and Microsoft initially take a loss on their hardware and make it back in software sales - this is how it should be done. Sure people will cancel their plans, but many more won't. Those that don't, subsidize those that do. Just like a hardcore gamer pays for the casual that bought the system and only 1 game
Go VZW. Tell the FCC to shove it up their ass. They have a right to recoup loses on phones. This government is turning to complete shit, and I thought Bush's term was bad.
Now that other thing about internet charges.... that shit needs to be addressed Verizon. That's not right.
@LessThanDug
I wouldn't talk like that you are going to labeled a "man caused disaster"er and all the liberals on this site are going to down rank you into oblivion
why do people pay so much to get screwed? they get to run their monopoly and screw the end users.
only takes verizon 6 months to start making a profit off any user so their Bullshit needs to be reshoveled
@Ops
Do you have any facts to back that statement up or are you just talking out of your ass?
If I pay full price for the phone I shouldn't be paying the same price for service if that service is subsidizing the cost of the phone.
I get that most of us here on Engadget are willing to pay phones at full price to avoid a contract. The reality is the majority of cell owners are just not willing to. A lot of it is consumer education.
I work for Sprint, not trying to hide it. I will tell you my absolute number one objection 99% of the time is not the contract, it is the up front price of the phone even after the subsidy. Plans, contracts, etc. all seem to be secondary concerns. I think it is going to take a long time before most customers are willing to accept higher phone prices for carrier freedom and lower cost plans.
I personally do very much think there needs to be more wireless provider/phone freedom in the US. Wouldn't it be great if every US phone was mandated to have GSM/CDMA built-in and be unlocked? Heck, I'd personally be excited if CDMA had faux SIM cards that would at least allow the phone swapping freedom GSM customers have.
"Regarding the weirdness at the end of the contract -- where a customer still owes $120 23 months into a two-year deal -- Verizon says that it's still losing money (read: we should be thankful they're prorating at all)."
So, Verizon is telling us at month 23 on a 24 month contract, they are still losing money on that customer? And that just 1 month later they finally break even or start making money??? Bwahahahahahahajhahaahahhah. What a joke
Way too lazy to read through all of the comments, so sorry if I'm on repeat. But everything all of you are going on about is a classic case of "few ruined for many" - If you don't like the ETF's, go complain to the Ebay hounds. I'd imagine the whole reason this has gone into effect is because of last year's BOGO offer Big Red had on all Blackberries. If you could buy two $500 phones, pay $500 after ETF's and make $500 pure profit for a 5 minute phone call, would you? I KNOW some people were making a living off of this. As far as the data plans go - same story. If you're ever on the receiving end of a "my phone just did an update and my bill is $300 more than it should be from data charges" call, you would understand. Not everyone knows proper use of data, let's face it, we geeks are a niche.
I think everyone has forgotten that having a cell phone and cell service is NOT a right, it is a privilege. So, until the government takes over the responsibility of providing cell phones and service, then the service providers have every right to charge WHATEVER they want. If it's too expensive or ridiculous, no one will purchase the service and the company will be forced to change their policy or go bankrupt. That is the beauty of a free market economy.
@cjrw4life
Sure it's a privilege, but it is the FCC's job to ensure that there is a level playing field.
If it was a true free market economy, you or I would be able to start up our own wireless phone service with a tower in our backyard., The only problem is, if we tried that Verizon would report us to the FCC for not paying the millions in licencing fees that create a barrier for more competition. Verizon can't have the government protect them against competition and expect the government to allow them to change the rules whenever they please.
Electricity isn't a right either, and if the power companies had their way power would cost everyone $1000 a month. If you can't afford it, oh well, at a grand a month they could afford to loose a few customers.
My only point is that companies can't govern themselves. They are all driven by money in the short term. Just look at banking and every other industry that failed because there business was held up by what someone else thought they were worth and not actual value.
I work for one of the major wireless carriers. If/when American carriers drop subsidized phones, ETF's and contracts, all these people that whine about them now are going to be the same ones whining when they have to pay $100 to $200 more for a phone than they used to.
Do they really expect people to believe they lose money on every 2 year contract with a smartphone that they sell? Then why did they even bother getting the Droid? I'm glad Sprint hasn't tried any of this "the customers are breaking us by using a service they payed thousands of dollars for." Where the hell is the real Google Phone??!!
My apologies if someone else brought this fact up:
I was shopping Verizon for a new cell phone and I was given the choice of buying a subsidized cell phone for $200 (with a posted savings of $399), or I could buy the phone outright for a wonderful price of $650.
I scratched my head for a while trying to figure out how I only got a $399 savings on a phone that would cost me $450 MORE if I bought it outright.
The only thing I figured out was that the unsubsidized phone costs are numbers pulled out of someone's ass to justify high ETF and monthly usage costs to "subsidize"
Engadget you failed to mention this.
In a letter to the FCC, Verizon also said that it costs more to sign up smart phone users because it can take more time for sales and customer service workers to help customers understand advanced features and functions on the handsets.
That is a pretty FUCKING LAME ASS EXCUSE if I say so myself. If I'm not mistaken, aren't the employees there from 9-5 whether or not they sale a phone?
I do not see a problem with this because if I get a phone for cheaper with there help why should I not have to do something for that why should I not have to agree to something I do not see a reason why this is so wrong as they always say you do not get something for nothing and there is no free lunch so I think if we start complaining about this too much what will happen they end up making the phones cost more and then we will be complaining about that we are having to pay so much for the phone so why not just stop complaining about this and another thing if you do not want to agree to the ETF you can always pay for the phone out right and pay by month to month with Verizon so where does anyone really have a place to complain about this it makes no sense it seems like some are wining just because for they have giving you all the options that a business could give because what are they suppose to do give the phone away for free and then not expect you to pay for anything hello they are a BUSINESS and businesses got to charge for something so just stop complaining