Verizon, AT&T, Sprint, T-Mobile, and Google all respond to FCC's ETF inquiry
By Chris Ziegler 
posted February 23rd 2010 7:30PM
posted February 23rd 2010 7:30PM
All of the players roped into the FCC's early termination fee inquiry -- T-Mobile, Sprint, AT&T, Verizon, and Google -- have met the Fed's February 23 deadline for responding, and needless to say, you could destroy a small forest with the amount of paperwork that's been sent back to Washington. The majority of the inquiry focused on carriers' ETF pricing structure and whether there are different ETFs involved based on the device a customer chooses, and the subtleties in the differences between answers from different carriers are pretty fascinating.T-Mobile seems resolute that a single $200 ETF is the way to go and emphasizes that its customers can avoid the fee altogether by going with an Even More Plus plan, while Sprint says that it "continue[s] to evaluate the market" with regard to a multiple ETF setup. Google, meanwhile, is quick to note that it's just dropped its $350 Equipment Recovery Fee down to $150, though that amount still effectively represents the only device in T-Mobile's subsidized lineup that commands a grand total ETF greater than $200 upon cancellation -- but it gets even better later on when they get snippy for being lumped in with carriers on the inquiry and remind the FCC that the ERF reduction had been in the planning stages prior to the inquiry being issued. At any rate, they note that the ERF isn't intended as a revenue stream -- rather, it's a way to recoup the losses Google incurs when T-Mobile asks for its commission back if a customer cancels within 120 days (as you might imagine, T-Mobile conveniently fails to mention this point in its own reply).
Verizon -- which effectively triggered this whole mess by introducing its two-tier ETF -- basically echoes much of what it said in its last response, a surprising move considering the Commission's general displeasure with it, so it'll be interesting to see what kind of reaction it garners this time around. AT&T takes perhaps the most pragmatic approach through most of its response, answering the FCC's questions very matter-of-factly, but goes into a great deal of depth rationalizing early termination fees at the tail end and takes the opportunity to remind everyone that they've offered both commitment-free month-to-month and prepaid service for many years.
Something tells us this isn't the last we've heard on the subject, but for the time being, check out everyone's responses in the galleries below (more after the break).
[Thanks, Dan P.]
oooo, someone's in trouuble...
I think REASONABLE ETF's are fine. I understand they subsidize the price of the phone, but I also no they make way more back with the REQUIRED data plan. Verizon's current ETF for say a DROID is ridiculous, and I guarantee it is also to help stop people from hopping over to AT&T for the iPhone, or some other sexy new device on another network.
$375 ETF FTL.
@BrianH Judging by length of Sprint's submission compared to the rest, I think they must have a really small penis.
I personally think ETF's are fair, but are inflated above what they should be. I think $175, pro-rated, should be the maximum. Yes, carriers take a risk when subsidizing hardware, but the vast majority of people choose the carrier they do because of coverage, pricing, and service, so the ETF is really just a greedy way of punishing people who are severely dissatisfied with that.
@ScienceProUSAcom
I'm fine with ETFs too, but what I don't get is why carriers locking phones is fair, after the contract term, it is established that you own the phone, you should be allowed to use it with any other compatible carrier
@JeremyBenthem I believe you own the phone from day one, which is why they should all be unlocked. Your phone may be subsidized but that ETF is only supposed to lock you to a carrier. I can take any of my old phones in my desk and plug a SIM card in and get service. And if I early cancel, they don't ask for the phone back, just cash.
@ScienceProUSAcom
When the N1 costs under $180, Google isn't losing money when it sell the phone for $150. Google expects to make money from ads and personal information collection no matter where the phone is used.The loser here is T-Mobile. There is no reason for Google to charge an ETF if they expect to continue making money.
What'cha gonna do when they come for you...?
Do I understand Google's reasoning here? Let me get this straight...
I sign up at T-Mob and they pay Google $150 commission. If I then cancel my contract, instead of just giving the commission back, Google collects from me and pockets the original?
Imagine if retailers worked that way. I buy a flat screen TV, sales guy gets $20 commission. If I then return the TV I owe this guy $20 for the commission he had to give back to his employer?
That's FUBAR reasoning, Google.
@Flagman
Google sells the Nexus One at 180 at T-Mobile contract. They pay for the subsidized price with the commission they get from T-Mobile. If you cancel your contract T-Mobile asks for it's commission back from Google and Google asks you to pay for it as if you bought it unsubsidized without contract.
$180+$200+$150=$529 unsubsidized price.
@Flagman
If I'm understanding this right, Google pays T-Mobile. You cancel, T-Mobile demands the money back from Google, and Google then wants money from the only one in the equation that would exit better than they entered: the customer.
Either way, you can return the handset. What this set up does is make sure that you will pay the full unsubsidized price, and I've no problems with that. Do you expect to be able to break a contract and get /rewarded/?
@BigJayDogg3
If Google does not collect, are they down $150? Or is this just a way, as you said, of making sure the customer doesn't benefit?
So, T-Mob pays Google commission, which Google then uses to subsidize the price, since they get the hardware profits anyway? Why does T-Mob not just sell for the reduced price and cut out Google entirely?
@Flagman
Someone somewhere will be down $150. I'm not 100% sure if it would be T-Mobile or Google, but my logic tells me that since Google handles the handsets, the storefront, and shipping, Google is trying to recoup costs.
Even if that $150 is pure profit, that's money Google could have made had they sold the phone to someone who would have kept the handset.
I will admit, this is a confusing situation, but IMO if you buy a $520 phone, you should have to pay the full $520.
@BigJayDogg3
I agree. I'd rather pay up front and skip the ETFs and potential complications. I still have a bad taste in my mouth over the EFT Verizon wanted to charge me for terminating a contract on a phone I already owned. I like knowing the real costs before signing the contract.
I'd love an iPhone, but I'm just not down with the costs of the contract. If I could get a more reasonably priced contract by forgoing the financing of the device, I just might go for it.
Just be thankful you don't live in Canada.
Up here the ETF for an iPhone is $500 not $200, and the contract is 3 years not 2.
We are getting boned big time.
@static416 but your health care system in canada is far superior. so you can stomach the cost/plan and not get sick. in the US, we get screwed with ETFs that make us sick and then we have to go to the emergency room. then the insurance company tells us that the ETF is a pre-existing condition and drops our coverage. then we die from lack of coverage, and our relatives have to pay our ETF to cancel our phone contract since we're still liable for it when we're dead.
@ravissimo
Canada's health care system isn't as good as it sounds. The grass is always greener on the other side (of the border). I'm a medical student and have studied this. This video illustrates some of the problems with it.
http://www.youtube.com/watch?v=q2jijuj1ysw
i sell AT&T, Sprint, and Verizon... and these companies are asking for way too much for the ETF. the average smartphone costs about $150 to make. They bring the price down to pretty much that and then claim they are losing money on handsets if people leave too soon? I'm pretty sure that the droid is something like 185 to manufacture, so you pay an average of $200 (i know its down to 100 many places now) and then pay monthly bill of say 100 on that and then cancel after a year and have to pay about 250 on a cancellation fee (prorated from 350).
So, in essence, you paid 450 for the handset and then 1200 for the service... on a handset that costs about 185.
I don't understand why phone just aren't set at what the carriers pay for them, then they offer 150 off that price and if u cancel before 2 years you pay that 150 back to them. that seems the most fair way to do it right?
@schultz
This logic still doesn't make sense. You buy a complete phone. Not parts. I'd like to see you buy bare parts and try and use it as a phone.
A company has to research and develop the phone, send it through testing, pay people to mass produce it, etc. Just because the parts total $150 doesn't mean the phone costs $150 to produce.
@BigJayDogg3
And don't forget these businesses are in business to turn a profit. They can't do that if they only break even.
@BigJayDogg3
they are using similar technology to what already exists. its not like they put billions into creating some breaking technology. they redesigned something else that already existed. and if they cant make back their money and a substantial profit by charging just $20 over production cost when they sell MILLIONS upon millions of these units... then they are paying their employees way too much.
@BigJayDogg3
I understand that, and thats why im saying what the CARRIER pays for the phone, not what the manufacturer does. read before you argue. The carriers make plenty off of the plans.
@schultz
Regardless, you still have to undergo testing. How do you make sure this phone will behave properly? Look at the N1 right now. It's having 3G problems.
Let's not forget that the longer you wait to release a product the more it will cost. You have to keep paying those same employees to do the same work when they could be working on other things. Not to mention the fact that they could pull a SE and wait so long to release phones everyone loses interest. You would be able to release a phone that was relatively bug-free, but then no one would care about your product anymore.
Look at the PS3. On parts alone I'm sure it cost somewhere around $300. But even at release when they were selling for $700, they were still LOSING money per console. Game consoles can afford to do that because they will then make their money up on game sales. Cell phones don't have that benefit. Some cost is made up in app sales, but many people (most people I know anyway) refuse to spend money on apps.
Regardless, that phone still probably cost north of $300 or $400 when it rolled off the lines.
@schultz
And people still pay those prices don't they? That's the market system at work. If the prices were really too high, sales would be extremely low.
Learn economics before you argue.
@BigJayDogg3
and again im not suggesting we bankrupt the manufacturer, im saying that if the carrier wants to subsidize the phone, then the ETF should match what the carrier took off of their cost of the phone.
For example:
Env3... manufacturer charges verizon 200 for the phone. Verizon charges the customer 120. if you end the contract early, 80 should be the termination fee.
I'm not suggesting the manufacturers sell their phones for less. I'm working on becoming a computer engineer, my future depends on manufacturers making their profits. I'm simply talking about carriers charging 350ETF on a phone they only reduced by lets say 100 dollars. And then if you break the phone you have to pay typically 200 more than what the carrier paid for it.
@BigJayDogg3
The PS3 is not a relevant argument. Cost to manufacture (probably parts + R&D) was more than the MSRP (I'm talking about the original 60 GB, which I own).
The reason I say it's not relevant is because Sony created a BRAND NEW TECH: The Cell CPU and the Blu-Ray drive.
Mobile phone manufacturers are just putting together parts created by electronics companies that have been in business for awhile, producing these parts. They are reusing a lot of the same chips, reusing infrastructure. Mobile phone retail prices are inflated.
How much is up for debate, but I think we can agree that they are to some degree. I mean, these smartphones cost almost as much as netbooks. They cost more the the basic components for a desktop PC. I understand smaller circuitry usually is more expensive but come on...
@beatsmelody
It is a relevant and accurate argument. The point still remains if you were to (could) walk into a store and buy all the parts necessary to build a PS3 at home at the same cost Sony could buy them at, it would be cheaper than if you bought a PS3.
@BigJayDogg3 Thats not true at all. For every unit Sony sells, they take a hit in cost. Sony is practically giving PS3s away. They make up The cost in games and accessories. No way does it cost $60 to manufacture the controllers.
@Colrath
Thanks for making my point.
I'm going to use a little Tea Party / Libertarian / Republican logic here... how does this sound?
I say let the free market work. Fair price is set by the market, and the cost is currently at the market will bear. There is no reason / justification for the government to bud it's nose into my business (transaction). The government need not bother trying to legislate or regulate these fees... too much regulation / big government / government involvement in unnecessary places is ruining our country. Let the businesses operate as they see fit and the market will correct itself when the businesses step out of line.
I love my ETF and the fair market price that the carrier has set for me. No need to bother with this, FCC. Maybe you should go dissolve yourself.
Hello, can you hear me now? ;)
@Please forgive me
I forgive you. But IMO, you're wrong.
The consumer needs /some/ protection from companies becoming too large. If companies were allowed to do like they wanted, you can be sure every carrier would pull an OPEC. All that would result is price fixing, and all around the consumer would most definitely not benefit. Pure capitalism isn't the answer.
@Please forgive me
Republican's shouldn't be included. If so we'd get a "no phone left behind act" where every phone must web-browse at a 6th grade level and have a calculator that can function at the stock iphone app level. Republicans have lost their small government mantra.
@Please forgive me That would be OK if this was truly a free open market. Sadly with cell providers you are dealing with an oligopoly, few sellers and a market with high barriers to entry. That means most of the free market corrections you would be hoping to see simply do not apply.
@Please forgive me
Guys, I hope you know I was kidding around. I was just pointing out the hypocrisy... On the one hand, some people want free market capitalism... the market will determine what is correct... on the other hand, every time there is a corporation / sector of the market taking monopolistic advantage of the populace, people cry out for oversight. I don't think a free market would ever be good for people, because the correction might occur, but it might not be timely or pleasant, and would likely result in death, loss of home, etc. Also, capital has a tendency to eliminate competition, a la mergers / acquisitions, not to breed more. In many cases, the leverage needed to enter the market is so great, it's prohibitive. Anyway.
I'm much more of a socialist. No, the economies of the east were not socialism / communism, they were state run capitalism (the state collected the profits but it was not primarily for the benefit of the populace). I know, some people here will want to shoot me, but some of the best minds believe socialism is the better system so I'd die knowing I was in good company (the intellectuals, not you rabble.) ;)
@BigJayDogg3
Yeah but as you see with OPEC, none of the members follow the rules. Someone will break the rules and reduce their price, and grow in the market. Price fixing is inherently unstable.
@Please forgive me
I forgive you..for using Republican logic
@Raffi256
oh and i knew i wasnt the only person (alive) who thought socialism is a good thing
the FCC needs to get Verizon on this issue, $350 etf? wtf! That plus the cost of the phone upfront, costs more than the phone unlocked online
That can't be legal
@Hydra
The govt. has no business in this. You don't like the ETF, don't buy the phone. No one is forcing anyone to buy the phone or the service. If you think the ETF is unfair, speak with your wallet. Bottom line, you sign a contract that says you agree to pay the fee if you end the contract early. I wish the carriers would make a point and start suing customers taht don't pay. They signed a legally binding contract.
Let's get this party started! How about it, FCC?
Do you mean a small forest WAS destroyed with all the paperwork? Because if the paperwork already exists, destroying a small forest with it in the future makes me imagine people hammering at trees with a ream of paper in their hands.
@smp
I thought the same thing +1
The FCC pisses me off
why do they have to get into the financial life of these companies...
they dont control the phone service as it is, they dont set the prices, they dont distribute the service, and they certainly dont own the company. So why is it that they force these companys to set a price for their devices. Who are they to tell them what to do and not do.
@robindahoods Yeah, yer right! If every danged cell carrier decides to charge a $20,000 ETF, what business should that be of the government's??? Capitalism!
@robindahoods
If they limited the ETF then your monthly bill will go up, it's that simple.
@robindahoods
You do have a point. In fairness to what you're saying, it's true, how does the FCC know that $350 is too much? What does it matter really if the ETF is not linked to a phone price, but to a service contract? I mean, if it really was unreasonable, people would chose not to get cell service, and the companies would have to make adjustments, or other companies could enter the market to lower the cost of the ETF.
Problem is really that:
1. You would either be paying what the carriers demanded or you would be out of service and no cell phone.
2. The competitive pressure to reduce cost of the ETF may never arrive because the cost to operate a cell phone business is so great, people don't just enter these things. You might be waiting a long time for another company to open up shop from which you can buy service.
But you're right... does the government set fair price for anything else? Cars? Tolls? Movie tickets? Sporting events? Airline tickets? Medicines? Medical procedures? If they don't set the pricing or regulations on pricing for those, then the cell carriers are being unfairly restricted. Truthfully.
Ok, so Verizon responds with, what looks like, stuff they copy and pasted off their website....that will clear things up. /sarcasm
I love how Sprint attached their flyers
Where are AT&T's commitment free plans? I haven't actually ever heard of these. The only ones I know of are T Mobile's plans which are $10 cheaper than comparable plans on their subsidized/contract plans.
What is ATT's iPhone no contract/ no commitment postpaid plan fee? I am buying a iPhone 1G from a customer who is out of contract. In the FCC letter they say they have no commitment postpaid plan- Any idea..????