FCC to hold hearing on early termination fees

The Federal Communications Commission will discuss a proposal at an open meeting Thursday that could reduce the cost of getting out of your cell phone contract.

The industry-sponsored proposal would give new cell phone customers a 30-day grace period to cancel their contracts without penalty. After those 30 days, early termination charges would then be pro-rated over the life of the contract. This means customers who want out of their contract in month 20 would pay less than those cancelling their service after only four months.

Cell phone operators have argued that they must impose early termination penalties on contracts because they subsidize the cost of the handsets. And to recoup the cost, the operators must be guaranteed a certain amount of service revenue.

AT&T and Apple just announced this week that the new iPhone 3G will be offered in this way. AT&T customers will be required to sign a two-year contract in exchange for the subsidy, which brings the cost of the new 8GB of the phone down to $199.

Customers who bought the first iPhone were also required to have a two-year contract with AT&T despite the fact that the phones were not subsidized.

In the eyes of many consumers these early termination restrictions are unfair and hamper competition. And thousands of them have banded together to file class-action lawsuits.

Check back on Thursday for coverage of the FCC hearing, which begins at 7 a.m. PDT.

[Don Key]

The fact that the first iPhone was as expensive as it was AND required a two year contract from AT&T which makes the subsidized invalid.

I think pro-rating the fee is a good idea but then again, the phone companies will just raise what the fee is to keep it consistent with that they have now.

[Penguinisto]

Actually, if I remember right, you could back out of the contract w/ AT&T in the first two weeks or 30 days (forgot which) without penalty.

[gmon750]

iPhone 1.0 may not have been subsidized but the data plan was $10/mo cheaper than the new 2.0 plan. Over the course of the two year contract, it all comes out pretty much the same. Please do your research before you rant. One way or another, they are getting their money. Any other phone carrier with exclusive rights to a phone would do the exact same thing. This is not an AT&T/Apple monopoly.

[gmon750]

iPhone 1.0 may not have been subsidized but the data plan was $10/mo cheaper than the new 2.0 plan. Over the course of the two year contract, it all comes out pretty much the same. Please do your research before you rant. One way or another, they are getting their money. Any other phone carrier with exclusive rights to a phone would do the exact same thing. This is not an AT&T/Apple monopoly.

[fangodango]

The early termination fees and handset subsidies should be abolished. It would do a couple of things in addition to a complete democratization of the cellular business.

1. Force Handset manufacturers to innovate and differentiate while bringing prices down.

2. Increase competition in the cellular service providers where they will have to improve basic services instead of the usual anti-competitive contract lock-in which serves as a hand-cuff for the customer looking for a better experience.

Customers should be allowed to bring their own device to the network and have no termination costs since they received no subsidy.

[brettotte1]

You CAN bring your own handset NOW and not have a contract. Cell phones aren't cheap. ETF's pay for the reduced price phones. If you don't want a contract price on a phone then pay FULL RETAIL.

[Gerry S]

I can understand the phone co's desire for a termination fee, but with it, they have a less than motivated circumstances to provide quality services and customer services, especially in technical support....Sprint/Nextel is a prime example. When a customer signs up and is misrepresented as to the "fewer
dropped calls" B.S., or has a billing problem or phone problem, the carrier could care less...I am sure the first thing they do is to see how long you still have on your contract, which certainly dictates the quality of service they render. Customers seem to always be "Wrong" or lying whenever there is a problem....at least that has been my experience for the last 18 years I have been using cell phones. The carrier is also very quick to turn the account over to collection and report it on your credit report, They will do everything they can to collect the termination fees regardless of whether they are legally entitiled to it. I can assure you unless the FCC puts some ironclad, no loophold conditions in any ruling, the carriers will do whatever they can to continue to screw over their customersm especially those that complain about service or have technical problems.

The idea of allowing any further mergers is also ridiculous... if one of the competitors is struggling, let them go out of business and force the remainders to COMPETE for the other customers...don't let one of them buy another customer base....I mean, they killed off AT&T back off in 1984....and they are back stronger than ever....who knew it was a beast and the only way to keep it dead was to put a stake in it's heart.....now they are back, Verizon and AT&T......a two headed monster....when does this never ending cycle stop? When is the government going to really allow competition instead of just putting on the same old dog and pony show? Where the hell is the FTA, anti-trust division of the Attorney General? Where the hell are our Congressmen....sorry, that's a whole other subject.

[danielz40]

Cell phone companies are no different than the old phone companies. They don't care, they don't have to.

[aka_tripleB]

FCC should set a rule that the early termination fee should never exceed the value of the subsidy. Why should someone buying the StarTAC 3000 pay the same ETF as someone buying the LG Vu? You're obviously getting ripped off because you would get a $150 subsidy for the Vu, but basicly a contract that'll force you to pay for a pratictly free phone.

And the subsidy should be negotiable. If you pay full price or bring an unlocked phone, you shouldn't have to pay an ETF. But if you get a phone for $150 off the price, then your ETF will be $150. If you only want $50 off the phone, then $50 ETF. And let each provider decide if they want to prorate the early termination fee, seems how the ETF would be negotiable. Sure the ones that do might seem enticing, but one that does might have better service and you might not mind.