Say Goodbye to Early Termination Fees

The early termination fee on your cell contract feels like a ball and chain, but now one carrier wants to set you free. Who will follow?
From the October 2006 issue of Entrepreneur

We absolutely love our cell phones, as we should. What other gadget delivers so much to so many for so little? But it has a couple of aspects we hate-early termination fees first and foremost.

This fall, Verizon Wireless will try to make its phones more lovable by prorating the $175 ETF it charges customers who leave before their two-year service agreements expire. "We believe dissatisfaction with flat early termination fees is tarnishing the entire industry," announced CEO Denny Strigl in a Verizon press release.

If it's so bad, why not just drop the fee altogether? Because you might split with that fancy phone you got at a deep discount before your carrier recoups its investment, says a Verizon representative. By the way, prorating doesn't apply to the 50 million Verizon customers whose contracts predate the new policy.

"Prorating these penalties is meaningless," says Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group. "They're still penalties, and they still keep people from shopping around. It's a fig leaf they hope the FCC will accept so they can keep their unfair practices."

Cingular Wireless, Sprint and T-Mobile-which have ETFs of $175 to $200-say they won't even prorate. A U.S. PIRG survey found that almost half their customers would switch carriers if ETFs weren't in place.

Verizon leaves the prospect of abolishing ETFs on the table with a reminder of other occasions it has broken with its peers. For example, while other carriers fought the prospect of letting departing customers keep their phone numbers, Verizon embraced the idea. It got ahead of the inevitable and wound up being a favorite destination for consumers shopping a new deal.

But now that various court cases are challenging ETFs, the industry is turning to the FCC, the putative protector of wireless customers, for relief. Carriers want the feds to redefine ETFs to give them statutory protection from lawsuits, explains Mierzwinski: "Historically, the FCC has been a captive regulator, much closer to the regulated entities than the public interest." Ultimately, he predicts, the courts will have to resolve the ETF issue.

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