Last month, Verizon answered the Federal Communication Commission’s (FCC) request for more information about their recently increased early termination fees (ETFs) on smartphones. The carrier doubled the ETFs on many of its devices from $175 to $350, saying at first it was to better redoup their subsidy losses when customers cancel their accounts early, or switch to other carriers. But in their written response to the FCC, they let slip that they also plan to use the extra income for other expenses such as “advertising costs, commissions for sales personnel, and store costs.” This was a red flag for the FCC. One commissioner, and now even the chairman, Julius Genachowski, have expressed their concern that the increased ETFs are not in consumers’ best interest. While they haven’t taken any action, Verizon may be making a preemptive effort to head off any possible repercussions by reducing the number of smartphones subject to the increased ETF. But is it enough? Verizon initially applied the doubled ETF to 46 devices, including its current big seller, the Motorola Droid, several popular BlackBerry devices (including the Storm, Pearl, Curve, and Tour), the HTC Touch, and even a few netbooks. The original list of devices also included some multimedia phones. Those devices—10 of them—have now been cut from the list, leaving just the smartphones. On the one hand, it could seem like Verizon is trying to appease the FCC, and to a lesser degree, its customers, by taking these devices off the high ETF list. But is it really a genuine attempt to apply the $350 ETF in a fairer way? Or is it a token gesture? Doubling ETFs to recoup subsidies might be understandable if the math worked out. But it doesn’t. The ETFs are prorated. They decrease by $10 per month for the life of the contract, which is the standard two years. So, by simple multiplication and subtraction, that deducts $240 from the ETF. Why, at the end of a contract, is there still $110 remaining? Logically, shouldn’t it zero out by the end of the two years? This makes switching carriers, even just a few months away from the end of a contract, unpalatable for customers. And maybe that’s the idea. In addition, Verizon changed its story midstream. What started out as recouping subsidies became subsidies and other expenses, some of which could fall into the category of “cost of doing business.” Consumers and consumer advocacy groups have been questioning ETFs since wireless carriers began charging them. Admitting they’re being used for more than just the cost of a phone attached to a prematurely canceled contract hasn’t done much to bolster their validity. Just the opposite. If Verizon doesn’t come up with better answers, or more accurately, a better solution, the FCC may decide ETFs in general—not just Verizon’s—warrant a closer look.
Is Verizon bowing to FCC pressure on ETFs?
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