Article Blog #15: Can you hear me now?

"So, Verizon, about those doubled early termination fees..."

In recent days, the Federal Communications Commission has again been acting as a watchdog for consumers. Instead of threatening direct action against companies, the FCC has been sending letters asking a few questions about policies they find suspect. And these letters have been getting results. The latest company to receive such a letter is Verizon Wireless. The reason the FCC is so interested in Verizon is their recent hike in early termination fees. On November 15, Verizon doubled the early termination fee for customers purchasing smartphones with one or two year contracts, from $175 to a whopping $350. To clarify, customers who signed a contract with Verizon after buying a Blackberry or Droid smartphone would have to pay $350 if they want to terminate that contract early. Early termination fees are just something you live with when you sign a cell phone contract, but $350 seems a bit excessive. And at least four US Senators agree. On thursday, they introduced legislation that would put a cap on the amount cell phone carriers can charge for early termination of contracts. Verizon claims that the boosted charges are to recover money that Verizon removes from the purchase price of the smartphones with a contract. Verizon, and many other major mobile companies, subsidize the often high prices of phones in exchange for the customer agreeing to sign a contract with the company. However, this explanation seems to fall flat. The FCC questioned why a customer who terminated a 24 month contract in the 23rd month would still have to pay a fee of $120. If the purpose of the early termination fee is to recover money lost through subsidizing, why is the fee still so high near the end of the contract? Currently, Verizon's termination fee decreases by $10 for every month of the contract. If the proposed bill passes, Verizon will be required to change this so that the rate decreases in proportion to the time left in the contract. Which means that after one year in a two year contract, the customer would only owe half of the original termination fee. This is a good thing in my book. Verizon's doubled termination fee for smartphones just seems to me like an attempt to discourage customers from even looking at the competition.

Additional Sources:
Verizon's Going to Have to Answer to the FCC (and Customers)
Verizon Wireless asked by FCC about increased termination fee