Let's Cut This Short
If you've been hoping for an end to early termination fees, sorry--they're still here.
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This story first appeared in the September 2008 issue of Entrepreneur. To receive the magazine, click here to subscribe.The FCC has taken up the issue of early termination fees, or ETFs--one of cell phone users' biggest gripes. But don't celebrate yet: On the table is an industry proposal designed to modify the way ETFs are applied rather than eliminate them altogether. Cell phone companies are seeking relief from consumer class action lawsuits that have started reaching state courts, explains Lee Selwyn, founder and president of Economics and Technology Inc., a public policy consulting firm.
The industry is asking the FCC to take jurisdiction over the $150 to $225 early termination fees cellular providers charge those who end their two-year contracts early, thus superseding state oversight, adds Chris Murray, senior counsel for the Consumers Union. Says Murray, "What the industry seeks is really nothing more than special treatment that would exempt it from the laws that all other businesses have to follow." The plan gives cellular phone and service customers a 30-day introductory period after which ETFs would be prorated. But the barrier that hinders your freedom to switch carriers will remain--one that is particularly effective at locking in the best cellular customers: businesses and families with multiple phones.
Cellular providers claim they need ETFs to ensure that those receiving discounted phones will be around long enough for costs to be recouped. But Selwyn points to public data showing that the average cost to providers for this "handset subsidy" is $14.33, while revenue from the average customer is $3,665 over five years. Cellular companies also cried wolf in 2003 when customers were first allowed to take their phone numbers with them to new carriers.
Ultimately, the ETF issue will be decided in the political arena, says Selwyn, who suggests you comment on the FCC website and contact your elected representatives. One of them is Sen. Amy Klobuchar (D-MN), whose Cell Phone Consumer Empowerment Act is before the Senate.
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