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Summary:

The FCC sent a letter to Verizon Wireless seeking answers to two key questions: Why did it increase the early termination fee and how does it determine what it charges? The FCC also wants to know if Verizon was charging $1.99 to accidental mobile web users.

Updated with Verizon’s response: The Federal Communications Commission wants to know why Verizon decided to double its early termination fee (ETF) for new customers who sign on to the wireless service using advanced devices…longhand for smartphones. The FCC today sent a letter to Verizon Wireless seeking answers.

The FCC correctly questions Verizon Wireless about its policies and when the answers come back, I bet they’ll remove a thick fog of obtuseness in which Verizon and its brethren cloak their service. The whole ETF is a mess worse than European soccer these days. The FCC, in a roundabout way, is asking Verizon to clean up its act around ETF. (Full questionnaire in PDF form is on the FCC web site.)

The FCC also wants to know if Verizon charges $1.99 “for inadvertently accessing Verizon Wireless’s Mobile Web” and if so, why. The commission wants to know if there’s a “a minimum data amount or level of access that triggers charges, and if so, what is that amount or level?” And it wants to know if some of Verizon’s phones have keys that are pre-programmed for one-click access to the mobile web.

These issues were brought up in the press and many Verizon customers have been complaining about such clearly murky tactics. No wonder people have no love for their phone companies.

Being a Verizon customer, I have an unlimited plan for everything and so far, I haven’t been overcharged. However, others don’t have that luxury. Either way, I think the FCC is right to push for answers. If the new FCC makes these service providers more transparent in how they charge consumers for services, I would say it is job well done.

Update Verizon Wireless spokesperson emailed us the company response:

We fight day-in, day-out to meet and exceed our customers’ expectations. We do that by constantly improving how we do business.

Our declining early termination fee, or ETF, makes it possible for a broad array of Americans who might not otherwise be able to afford broadband connections to be active participants in the online world. Too many people still can’t afford to buy a PC for Internet access, and a subsidized handset option can be a great option.

Nobody is required to pay an ETF.  You always have the choice of buying a mobile phone at full price with no ETF. Or you can buy a device at a discount with a 1- or 2-year contract.  If you stay with your contract, you don’t pay a fee at all.

We’ve heard from very few customers who accidentally accessed their web browsers, and we immediately credited them $1.99 per month for the problem. A few months ago we modified our service plans so when somebody accidentally turns on a data service they don’t want, and they quickly turn that service off, there’s no charge.  Even if this happens a few times a month, there shouldn’t be a charge on the bills.

  1. Duh – they raised the ETF to prevent people from signing the 2 year contract to get the discounted phone and then bolting. Is it really that tough to figure out?

    Retail price of the Motorola DROID: ~$600 (depending on where you go)

    Price if you break contract: $200 + $175-200 termination fee = $375-400

    Price if you break contract now: $200 + $350 = $550

    I don’t get the big to-do about ETFs. The consumer signed a contract, and agreed that if they break it, they’ll pay the ETF. If you don’t want to have to pay the ETF, don’t sign the freakin contract. You can still buy the phone and get the same monthly fee.

    The problem here is that American consumers don’t have any sense of financial responsibility anymore. Look at the credit crisis, and listen to FM radio for 20 minutes to hear 10+ ads for ‘Credit Consulting Services’ that promise to eliminate your credit card debt, no matter how much you have. The message going out is ‘don’t worry how much credit card debt you build up – just call us and we’ll make it go away’. It’s horrendous.

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    1. Well, its not entirely the fault of the customer either.
      Readnig Verizons response, I still have a nagging question which you might be able to answer.

      If I get my own phone (doesnt matter from where, but def. not from verizon), then why cant I subscribe to verizon at the monthly price that a 2 year contract guy pays? If the ETF is for the price of the phone, well I am not getting a subsidized phone from them.

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      1. Srini,
        Whether you provide the equipment or you get a subsidized phone your service and monthly costs are exactly the same. The only difference would be that if you provide the equipment you don’t have to sign any contract.

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    2. @Ricky – not tough to figure out at all, but the real problem with ETF’s and the phone subsidies that they enable is that they make the price of the phone artificially high.

      You quote the Droid price around $600, and an unsubsidized 32GB iPhone would be $699 per the Apple website. Both are fine hardware, but not worth anything near those prices. For comparison the 32GB iPod touch is only $299. Is the difference (a 3G radio chip) worth $400. No way in hell.

      I’m not picking on Apple, every regular and smart phone is the same way – if consumers had to upfront the retail cost instead of amortizing it over a 24 month contract – phone hardware would be substantially cheaper because few would do so.

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    3. All the carriers are tinkering with ways to recoup their upfront expense in buying phones and building networks. The core problem is the flat rate data model, and the fact that 20% of their customers (smartphones and aircard users) consume 90% of the capacity. Sell market-priced services by application (i.e. browsing, email,downloads) and you now have a market-based model, with no artificial gimmicks that alienate customers. If you know up front what you buy for a price, (rather than undifferentiated data buckets) you’re less apt to complain, and now Verizon (or the other carriers) can recoup their investment in an economically sound fashion. Government intervention in pricing is a non-starter because it stifles innovation if there’s no payback.

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  2. You guys are missing another important issue.
    I purchased a smart phone out side (Ebay) and wanted to use it for a month with no contract. They refused.
    The way it works is , you will start a contract for a year or two to begin with. This is regardless of the fact that you pay full price for your phone or not.
    Once you complete the original 1 / 2 year obligation , you are free to go month to month. You can then buy your own phone and activate it.

    The whole thing is designed to lock your monthly payment for a year or two. If not , pay them $ 350.00 or whatever the pro rated fee.
    Verizon has most expensive plans to begin with , on top they are charging double ETF ?

    I hope they loose few customers so that they reduce these ETF prices.

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