AT&T and Verizon defend early termination fees

LAS VEGAS--Executives from AT&T and Verizon Communications defended early termination fees for wireless customers Tuesday, but said they wouldn't oppose Federal Communications Commission rules that required these fees to be "reasonable."

Jim Cicconi, AT&T senior executive and vice president for legislative affairs for AT&T, and Tom Tauke, executive vice president of public affairs and policy for Verizon, said following a panel discussion at the NxtComm tradeshow here, that their companies are justified in charging early termination fees for wireless contracts, which often top out at $200.

The battle over early termination fees is heating up as wireless operators face multimillion-dollar class action suits from consumers who say these fees are unfair and deter competition. So far, wireless operators seem to have the upper hand in the battle, as a California state jury ruled in favor of Sprint Nextel last week in the first of these class action lawsuits.

But now, the FCC is considering taking jurisdiction over early termination fees. And the agency is considering a proposal from Chairman Kevin Martin that would require consumers be given a 30-day grace period to cancel their contracts without penalty. After those 30 days, early termination charges would then be prorated or reduced over the duration of the contract. Martin also proposes that fees should be based on the cost of the phone and that they should be "reasonable."

Cicconi and Tauke said that they are confident they could reasonably justify the cost of their fees, despite criticism from consumer advocates who say these fees are not used to recover costs but are merely used to deter customers from switching services. One industry expert who testified at a recent FCC hearing said that the early termination fees wireless operators charge are roughly 12 times higher than the cost of the actual phone subsidy they claim to be recovering.

"The fact is that it costs us hundreds of dollars more than the fees we charge to acquire a customer," Tauke said.

The executives also argued that consumers have many choices when it comes to the phones they buy and the services they subscribe to. Both carriers offer some phones at full price and allow customers to subscribe to month-to-month contracts, they said.

While AT&T and Verizon Wireless might offer some phones at full retail price in exchange for month-to-month service contracts, most of the hottest and most popular phones are not offered in this way. For example, the new 3G version of Apple's iPhone offered exclusively on AT&T's network can only be bought for the subsidized price of $199. AT&T also requires new iPhone users to sign up for a two-year contract. The previous version of the iPhone, which was not subsidized by AT&T, also required customers to sign up for a two-year contract with AT&T.

When asked why AT&T isn't giving consumers the choice of buying the new iPhone for the unsubsidized retail price without the constraints of a contract, AT&T's Cicconi had this to say: "Apple is providing the iPhone on these terms and conditions that it negotiated with AT&T. And if customers don't want to accept these terms, they can buy other devices."

While that's true, consumers still have no other way to buy this particularly innovative phone without agreeing to strict contractual terms from AT&T. This is despite the fact that AT&T said it has found its iPhone users to be among its most loyal customers.

"People have a choice," Cicconi continued. "They make decisions based on a lot of factors, like features and functionality of the phone and the terms and conditions under which that device is offered. Why should the government intercede on a deal that was struck between AT&T and Apple? I don't think the FCC should single out any one device in making policy."

Verizon's Tauke chimed in by saying that other industries also require term contracts.

"My gym requires me to have a year contract," he said. "The lawn service that cuts my grass has a one-year contract. Tivo requires a year service. This isn't unusual, and it's questionable that any government should regulate fees on any service."

This might be true, but there are many goods and services, particularly utility services, which don't require contracts. I've never had to sign a contract to get water or electricity. And I never signed a contract for my landline telephone service. I'm interested to hear what readers think about this issue. So please share your thoughts in the "Talk Back" section below.

[cant_get_enough_tech]

I hate early-termination fees! I am on Verizon, and seeing this made my heart drop. Verizon, you just said you joined the Open Handset Alliance! Also, your phones are unlocked! So just for that I am taking my Chocolate and going on Sprint. I will miss you, service, but it will be okay in the long run *sniffle*.

[ben::zen]

In the situation where you are buying a small, shiny, and very expensive device, I think that the company does need some reimbursement for the costs. However, I think that these fees are repressive, and that a better choice would be to offer the device untethered to a company, for the full price, and then have the option of the tethered version, attached to a company. However, I consider Apple foolish for the decision to tie themselves to AT&T/Cingular, since they're cutting off a large number of possible buyers (at least on 3G/2.5G networks... until I'm out of my Verizon contract, I can't do much...) who dislike the terms of AT&T.

[MCOjerry]

I agree with you. I am an Apple fan and have an iPhone. I switched from Verizon for it, and I think the whole thing sucks. Especially now, since the revenue sharing is over and there really is no point to the partnership. I think Apple could have sold so many more phones with an open phone, and a GSM/CDMA capable phone.

I'm also upset over the new 3G iPhone being cheaper (subsidized) for the same 2 year contract that I HAD to sign, and to top it off, the service is $10 more per month.

Cellular companies really are in the business to rip the public off.

[ecoll39638]

How is Apple foolish? They went into partnership with the largest GSM provider in the USA. This is the standard used worldwide so I think it was pretty smart. Not that I agree all of AT&T's policies.

[MCOjerry]

They were foolish because they would have gained more sales by offering the phone through ALL providers. Many people were/are not willing to switch to AT&T. AT&T may be the largest GSM provider in the US, I don't know if that fact is true; but the total units sold would likely have been much, much greater with ALL providers. Plus, GSM/CDMA phones are possible, so a phone with all technologies would just be more likely to sell.

Again, I am an Apple fan and HAVE an iPhone. I'm not someone who doesn't own one making negative comments.

[wango2007]

Obviously AT&T is into rip and rape, not customer service.

Why should the government stop consumer abuse by AT&T? Because of their nasty attitude that "If customers don't want to accept these terms they can buy other devices." The reality AT& T is missing is that consumers deserve BOTH the devices they want AND non-predatory pricing from the company.

[ecoll39638]

Why are you so special that you deserve both. Does your cable company give you a 52" plasma TV? I think not.

[rthoma2]

DirectTV has ridiculous return fees as well. Article here:

http://www.tvpredictions.com/dcancel061108.htm

I can attest to this. They tried to charge me $360 to cancel.

[MCOjerry]

I think that phone are entirely too expensive. The costs seems to be so artificially high, that the subsidies are needed to reduce the cost to a reasonable level. Additionally, technology changes so often, that your new phone that you purchase yesterday is old technology in 1 year. This means that you typically want a new phone, with new features; so often that you are stuck in a rut with the service providers.

I'd love to know what the companies TRULY pay for these phones and see what the real mark up is. I doubt that they would lose money...and let's all be realistic, if the service was good, they wouldn't have to worry about losing customers.

[ecoll39638]

I can honestly tell you most carriers lose money on phones. They make it up on accessories, rate planes and features.

[halfeer]

Unfortunately, the costs posted as retail costs are indeed within a few bucks of what the manufacturers charge the carrier to purchase those phones. Phones are a loss leader for the companies and are just a device to be able to use and pay for the phone service. I think their policies with termination fees are waranted.

[PrissyPatriot]

Hey they didn't worry about the fees they may pay in a lawsuit when they illegally tapped my phone, now did they? I wish Qwest was in Ohio, I would drop Verizon in a heartbeat...this is just one more reason.

How dare they whine about ripping off customers and getting called out on it.

[dfrick52071]

qwest uses sprints network. so if u want qwest. next best thing is sprint.

[Dalkorian]

I don't think PrissyPatriot is worried about who's network is who's, I think s/he want to patronize the one telco that gave fuhrer bushit the middle finger when he tried to break the law. All others caved in, but Quest was wise enough to say "make it legal and there's no problem". AT&T - Your world. Delivered. To the NSA.

[ecoll39638]

I agree. I hate early termination fees. But I also work in the industry. People have been spoiled by free and cheap phones for years yet they still want the best phones for free. The cable compant doesn't give a TV. The landline companies dont give you a house phone. Your electric company doesn't give you a lamp. Why should your cell phone company give you a phone. Then you complain when you lose or break your phone that we should give you another one for free. If your TV breaks, your cable company won't give you a new TV. The providers are only providing a curtesy by offering you a phone at time of activation. Everyone is welcome to go to Nokia, Motorola, Samsung, LG, etc, and buy a phone at full cost and get it activated with no contract. That is how it is in Europe. I think that is how it should be here as well. I think every should have to buy their phone at full cost from the manufacturer and choose their provider.

[halfeer]

Aye, aye. I don't understand the way some people think. Why do they think phones are any less expensive than any other electronic?

[Dalkorian]

"The cable compant doesn't give a TV. The landline companies dont give you a house phone. Your electric company doesn't give you a lamp. Why should your cell phone company give you a phone." The cable company doesn't lock me into a specific TV either, I can buy any TV and hook it up to cable and expect it to work. Same goes for the electric company and landline phone company, any lamp I buy will just work as will any landline phone. The cell companies want to keep the cell phones proprietary to their networks so they can rape you for a new phone every 6 months to a year. Period. Defending their business model is just idiotic, unless you happen to be a cell provider I guess.

[ktengle]

I have been a Verizon mobile customer since 1993. Being a loyal customer, I EXPECT incentives to stay with Verizon! i.e. free upgrades to new model phones. The "New every Two" is why I stay with Verizon, that and the fact that I've NEVER had a problem with them.
I don't expect my cable company to provide me with a new t.v. if mine breaks, has NOTHING to do with cable service. However, it would be nice if my cable company would offer me an incentive to "stay" with them! They offer deals to new customers all of the time, but no deals or breaks to loyal customers!
If you lose or break your phone, that is what the insurance is for right? You can purchase it or not here.
Honestly, there is NO need for early termination fees, because if a company was living up to customer expectations, people wouldn't leave in the first place!

[MCOjerry]

@ecoll

so, being in the industry, just how much do the phones actually cost the company and what is the markup? I'm sure we'd all love to know this.

[ecoll39638]

MCOjerry...First let me say your post are very well written and thought out and I am not here for arguement. With that being said, the markup is usually less than 5% on average with some phones not being 0%. This is why customers are pushed to buy $30 charges and cases that cost $4 and features in excess of $20. Many customers today pay more for data and text messaging then they do for their vioce plan.

[asher100]

Unsubsidized handsets can vary in price by model but you are talking about on average $300 upwards to 700/800 range based on model. I will say this, the carriers have it drilled into US mindset that they should get a deal on the phone when they sign a contract. I liked the old PCS "no contract", buy the handset logic but the carriers did not as they could not forecast the revenues. They LOVE contracts and fees and they hate all inclusive pricing. The carriers will tell you it takes 2 years to recoup their subsidy on the handset based on customer usage. And yes, we are being taken advantage of as customers but wireless has become a necessary part of life. ATT could care less about loyalty. They treat their customers like their employees.

[halfeer]

They cost within a few dollars of the retail prices listed. Everyone is not out to jip you out of money.

[petekozy]

Yeah... and I was a loyal ATT customer even when they were Cingular. Had an account for several years. Every time I upgraded my phone it was a new two years. Finally, I wanted to change so waited till the end of my two year contract (at least what it said the end was on their website for my account). I got an early termination fee of 170.00 because they said by their records I was 5 days early in terminating. I then couldn't find any reference to and end date on my account. Somehow (sic.), I feel like I was taken advantage of. It these phone companies believe in standing on their merits, they wouldn't need to revert to such tactics. I really feel betrayed. I tell this story to as many people as I can.... Now... who really lost..??

[ecoll39638]

Pete...that would be your own fault. you should have contacted your provider before cancelling to see if your contract was up.

[Dalkorian]

Ecoll, read Pete's story a little more carefully. He *did* check with his provider through their website, which told him (erroneously apparently) his contract was up. This is a typical story of rape by the cell phone companies to people who think they just can't live without access to a phone at all times. I have little pity for cell users (YOU ARE NOT, REPEAT *NOT* THAT IMPORTANT!!!), but even less for the predators that claim they're cell phone companies who are looking out for your better interests.

[ewelch]

I have wanted an iPhone since June of last year. I still don't have one, and I won't until November.

Guess why?

Right. My Blackberry would cost $200 to give up. After all this time. That is the ONLY reason I'm still with T-Mobile and without an iPhone.

[ecoll39638]

Guess what? You probably only paid about $100-$150 that $300-$400 Blackberry in exchange for a 2 year contract. Poor Baby.

[westrajc]

The "Predatory Practices" of the cell phone industry are born of the failed privatization policies of the FCC. The FCC should have had a reverse auction for ubiquitous cell coverage that expanded at a reasonable rate till the majority of citizens had it available. Cell phone manufacturers could then compete on price and features within a single spectrum. The contract should be renewed every 5 years to "freshen" the technology base.

Now that we've "fracked" things up... the best solution would be to force cell phone companies to unbundle the service from the phones (hardware). People can either buy a phone or lease one... but either way, all service should be available contract-free, with discounts given for up-front payment (still no contract) or quantity (number of lines).

The whole PCS vs GSM vs IDEN (Nextel) is an exact replica of the multiple gauges of railroad track that plagued our country and hindered business in the early days of our country. You would think we would have learned... DUHH

Sign the petition to BAN exclusive handset deals!
http://news.cnet.com/8301-10784_3-9948904-7.html

Over 13,500 people sign petition against cancellation fees!
http://www.thepetitionsite.com/takeaction/134350724

Fight Back by "unlocking" your phone and insisting on a month-to-month contract!
http://www.foxnews.com/story/0,2933,235602,00.html

[ecoll39638]

all service should be available contract-free, with discounts given for up-front payment (still no contract) or quantity (number of lines).

Are you kidding me? So let me get this right. If i have a product that performs a valueable service and this product costs $500 with a monthly service of $50, I should give you this product for free? what if you cancel the service after a month? Than I am out $500 correct. You always have the option of paying full price and not signing a contract with any provider. Again I am not saying ETF's are right but I can see why they are needed.

[Zaunto]

Capitalism 101. They require contracts so they can lock you into their service offering for a two year period. That way, they calculate out and claim your payments in advance as revenue and make their shareholders think they are growing. They don't see themselves as a utility. If they did, no, they wouldn't lock you into a contract. They know quite well that in the particular case of AT&T, that $199 price tag for an iPhone fattens up over the two years that you're paying for wireless phone service plus the $30 data service you are required to also subscribe to in order to have the cool "crippled", half functional device that really isn't so mind blowing if you're not an Apple Fanboy.

[ecoll39638]

If they did see themselves as a utility they wouldn't sell you phones. They would just provide the service. Ask you cable company to provide you with a TV or the gas company to provide a stove. Or better yet when your TV dies try calling the cable company and tell them you arent paying your bill because your TV died. Let's see how that goes over.
PS...You can pay full price for an iPhone at an Apple store and not sign a contract for $500 but I'm sure you are too cheap to do that.

[Dalkorian]

Ecoll, stop shilling for the cell companies. Your arguments are falling apart. Otherwise I could buy an iPhone and use it on Quest's network. What do you mean I can't do that? I can buy an AppleTV and use it on any TV service I like without being forced into a 2 year cable plan! The cell companies have done this to lock you in, pure and simple. It's not about giving you the best deal, it's about forcing you to pay up when you are angry enough with them to cancel the service!

[shardsofmetal]

Wow, I didn't realize that the CEO of AT&T was such a sissy *****.It's Apple's fault there are 2-year contracts and early termination fees on the iPhone... OK, but what about every other phone? And the whole "cover our costs" thing is bull. If you return your phone, that should cover the cost, provided it's in good shape. They want to punish you for backing out of your contract. And yes, landline phone companies don't require 2-year contracts, why do cell phone providers? Thank god I have a GoPhone, and have no contracts, even if there are less features.

[ecoll39638]

Did your land line provider give you a phone at a reduced cost? And yes Apple does have AT&T by the balls and they are calling all the shots. as for everyother phone, you can pat full price and not sign a contract. But the manufacturer's set the no commitment price and no one would pay that because we are all too spoiled. And AT&T does offer a 30 day return policy where you can return and cancel with no early termination fee.

[westrajc]

The "Predatory Practices" of the cell phone industry are born of the failed privatization policies of the FCC. The FCC should have had a reverse auction for ubiquitous cell coverage that expanded at a reasonable rate till the majority of citizens had it available. Cell phone manufacturers could then compete on price and features within a single spectrum. The contract should be renewed every 5 years to "freshen" the technology base.

Now that we've "fracked" things up... the best solution would be to force cell phone companies to unbundle the service from the phones (hardware). People can either buy a phone or lease one... but either way, all service should be available contract-free, with discounts given for up-front payment (still no contract) or quantity (number of lines).

The whole PCS vs GSM vs IDEN (Nextel) is an exact replica of the multiple gauges of railroad track that plagued our country and hindered business in the early days of our country. You would think we would have learned... DUHH

Sign the petition to BAN exclusive handset deals!
http://news.cnet.com/8301-10784_3-9948904-7.html

Over 13,500 people sign petition against cancellation fees!
http://www.thepetitionsite.com/takeaction/134350724

Fight Back by "unlocking" your phone and insisting on a month-to-month contract!
http://www.foxnews.com/story/0,2933,235602,00.html

[kkeeww]

cell phone service providers are the biggest gangsters in the business world. Their fees are both numerous and unreasonable. I'm with Sprint and the customer service is horrible. I wanted to add another line to my family plan but they said that i could not. Because of this I wanted to cancel my contract (and go to a carrier that would let me cover my entire family). I was told that if I cancelled my contract (even) a day before the contract was up, I'd get an early termination fee of $200 for each line. I have three. I am trapped. I'd love to switch out but I don't want to be charged $600 to do it. I hope the FCC steps in to make things fair for the consumers. I would not be against paying a prorated fee to cancel my subscription. I've done it before because I was not happy with my service (DISH TV).

[docinaustin]

I've had contracts on Sprint, AT&T (Cingular), Verizon.... and other companies that eventually were bought out by these big 3. I am the type of person who wants a new phone every 8 months or so. I've never qualified for a "free" upgrade or reduced price upgrade because I purchase a phone new and at full price every time. The thing the cell phone companies do not tell you is that you make a change on your plan and they automatically do you a "courtesy" by renewing your contract for another 2 years.

[ccie5044]

"This might be true, but there are many goods and services, particularly utility services, which don't require contracts. I've never had to sign a contract to get water or electricity. And I never signed a contract for my landline telephone service."

This is a particularly weak argument. Water and electricity are typically single source services for a given location. If you want service, you buy from your utility company. Most municipalities won't even allow you to occupy a property without water and or electric service. The public service commission regulates the prices and service levels as a result. It's not a competitive environment, so it's not the same thing.

With cell carriers, you have choices. You can choose to buy the device and go month to month, or you can choose to allow the carrier to subsidize the device and accept the terms of their subsidy. There are lots of prepaid carriers out there now as well.

Vote with your dollars. Quit whining and expecting the government to deal with problems that don't even exist. If they do step in, expect an extra line item on your cell phone bill - a new tax the government collects to ensure you're being treated fairly by your provider. $8.33 sounds about fair, doesn't it?

[ecoll39638]

Some people are just too stupid to get it. You all think you deserve everything for free. To compare cell service with the likes of Electric or Water companies is rediculous. No they make you sign a contract but they arent giving you a refrigerator or a stove or a washing machine for a discounted cost for getting there service. In most cities you have no choice and have to get their service. With a cell provider you have a choice. And to the poster that mentioned about AppleTV not nneding a contract I ask this. If a cable provider offer AppleTV for free if you agreed to stay with them I am sure you would sign up in a heartbeat.

[Meg003]

I started buying used, activated phones on eBay instead of going to AT&T, formerly Cingular. Then I do not have to sign a contract. The contracts are sometimes very unfair. In our case the service drastically declined for one family member's workplace, after AT&T took over Cingular. Even though this service degradation was bad enough to put AT&T on the front page of our local paper with so many complaints, they would not let me out of that phone's contract. Since then, I buy used phones. They work great, are cheap, and I don't have a contract, so I am much happier and not bothered by the dead spots so much. Having the option to switch carriers lets me see the advantages AT&T offers, like the freedom to change your plan, and their great customer service.

[deusexmaxima]

About dam time!!!! I couldnt get pn phone fast enough with ATT to cancel one line. Of course they charged me but lets see what happens.