The 411 on early-termination fees (FAQ)

If you are considering buying a new BlackBerry, Android phone, or Netbook from Verizon Wireless, you better make sure you won't want to break your contract early, as the penalty for ditching your service before the end of the contract has just gotten a lot steeper.

But what does Verizon's move to increase early-termination fees mean for the rest of the wireless industry? That's a good question.

Verizon Wireless recently doubled its early-termination fee for what it calls 'advanced devices.'

(Credit: Verizon Wireless )

Early-termination fees are not new to the wireless industry. For as long as wireless operators have been selling and subsidizing cell phones, they've required customers to sign contracts. And they've penalized them for canceling their contracts early.

The phone companies say they must charge a fee to recover the cost if a customer quits his or her service early. These fees have angered many customers. Several class action lawsuits have been filed against cell phone carriers and some customers have won. Congress and the Federal Communications Commission have challenged the industry on this practice.

While it's very unlikely these fees will ever go away, as of mid-2008, all four of the major wireless carriers in the U.S. have been prorating their early-termination fees, so that customers near their end of their contracts don't pay the same fee as those just starting their contracts.

But now Verizon Wireless has shocked consumers and the industry by doubling its early-termination fee. Verizon representatives say it only makes sense that Verizon would raise this fee since it is subsidizing far more of the cost of sophisticated devices, such as smartphones.

In an effort to help consumers better understand these changes and to understand how other national wireless operators stack up, CNET has put together this FAQ.

How much is Verizon's new early-termination fee?
The new fee has been increased to $350 from $175.

Does this fee apply to all Verizon phones?
No, it only applies to contracts associated with the purchase of what Verizon calls an advanced device, such as a smartphone or Netbook at a reduced price. This change only applies to new contracts that started on or after November 15. For customers who signed a contract before November 15, the old $175 early-termination fee applies when they choose to end their contract early. This means that new Droid customers who bought their phones the first weekend it launched will not be required to pay the $350 ETF if they terminate service early.

Verizon and the three other major phone companies have been prorating their early-termination fees. Will this fee be prorated?
Yes, Verizon will continue to prorate the early-termination fee over the life of the contract. The rate will decrease by $10 each month of the contract. Verizon's previous prorate rate was $5 per month.

What about for non-smartphones or feature phones that run on Verizon's network? What is the early-termination fee for those devices?
The fee for non-smartphones will remain the same, $175. And the rate will decline by $5 a month during the contract.

Why is Verizon changing its policy now? It seems like it is just being stingy.
The company says that the $175 early-termination fee was set long before people were walking around with expensive, sophisticated, mini-computers in their pockets. The new early-termination fee more fairly reflects higher costs associated with advanced devices due to their more complex chip sets, microprocessors, and licensed software that perform more functions than other phones, the company claims.

Is there any way to avoid an early-termination fee or contract?
Yes. First, early-termination fees only apply if you cancel your service before the contract ends. But you also don't need to sign a contract if you'd rather not. But without a contract, customers will pay full retail price for the devices.

Verizon says it offers the option to purchase all its phones with either a two-year contract, one-year contract, or month to month, which requires people to pay full retail price for the phone. For example, the new BlackBerry Storm 2 is $179 with a two-year contract. But the phone would cost $539 without a contract. The new Motorola Droid is $199 after a rebate with a two-year contract. And it is $559 without a contract at the full retail price.

Verizon also offers prepaid wireless phones and service, which allow customers to buy their phones and add minutes of use in advance.

What about other national wireless operators? Have any of them announced they are following Verizon's lead?
So far neither AT&T, nor Sprint Nextel, nor T-Mobile USA have said they plan to raise the early-termination fees on their smartphone devices. An AT&T spokesman said he couldn't speculate on what the company might do in the future, but for now, the company is sticking with its current fee.

T-Mobile USA's spokesman didn't elaborate, but simply said the company has no plans to raise its rate right now.

Sprint Nextel also said it wouldn't raise its early-termination fees, and it criticized Verizon for doing it.

"We have no intention of matching Verizon's new ETF," said Sprint spokesman John Taylor. "We think the decision to double the early-termination fee just on smartphones doesn't make much sense. Why is Verizon trying to disincentive people from buying smartphones? We want people buying smartphones and using more data."

How much do these other national wireless operators charge for their early-termination fees?
Sprint 's early-termination fee is $200. The company reduces that fee beginning in the fifth month of the contract. Then the fee goes down $10 a month until it reaches $50.

AT&T's early-termination fee is $175 and it decreases by $5 for each month of your contract.

T-Mobile USA's early-termination fee schedule is a little more complicated. As of June 28, customers with a one-year or two-year contract with T-Mobile will see their early-termination fee drop from $200 to $100 if they end their contract with 91 to 180 days remaining on their agreement. If they end a contract with fewer than 91 days left on it, they will pay a termination of fee of $50. For customers who terminate their service in the last 30 days of their contract they will either pay the $50 fee or their standard monthly charge, depending on which one is cheaper.

Do these other carriers offer no-contract options?
Sprint allows some of its phones to be purchased for full retail price without a contract. However, the Palm Pre, which went on sale in June, requires a two-year data plan.

Sprint's prepaid brands Boost Mobile and Virgin Mobile USA also offer customers prepaid options that don't require a contract. And phones are purchased at full retail prices.

AT&T allows some phones to be purchased at full price without a contract, but phones such as the Apple iPhone must be purchased with a two-year contract and a $30 a month data plan. AT&T also offers prepaid phones.

T-Mobile USA also offers customers who don't want a contract different options, including T-Mobile Prepaid phones and plans, FlexPay, and month-to-month services including its new Even More plans.

Its Even More Plus plan allows customers to purchase any phone in T-Mobile's device lineup and sign up for a month-to-month rate plan without signing a contract. Customers pay full retail price for the phones, but have the option to purchase their phones using an Equipment Installment Plan over time until the phone is paid off.

For example, a customer purchasing the Google Android myTouch smartphone would pay $150 for the phone with a two-year contract. But with the Even More Plus plan, the customer would pay $400 for the phone with no contract. If the customer wanted to use the Equipment Installment Plan, he or she would pay $20 a month for the phone over 20 months.

[Sausagebiscuit]

In a way, I agree with the hike... but only for one reason. People buying the phones, breaking contract and still paying less than the retail price. Then turn around a profit on eBay or Craig's List. This worked really well with the B1G1 Blackberry sales.<br /><br />Otherwise, I felt the $175 was enough, but feel that it should be a $10/mo off for each month of service. Also, VZW needs to allow for cheaper monthly plans for those who don't get a phone subsidy. They make up alot of costs over those two years via expensive plans. T-Mo now charges approx $20 less for their Even More Plus plans if you buy the phone full retail. Right now there is little incentive not to get at least a one year contract with VZW and let them pay most of the phone cost. Buying retail wouldn't save you any money in the long run, unless maybe you planned to use the phone on a pre-paid MVNO such as Page Plus Cellular.<br /><br />Just some random thoughts. Happy Friday.

[teraguru1]

I don't mind paying for the phone, but I should also decided if I want to pay for internet. Why isn't the price bundled much like when I buy a car, I know I need tires to make it work. Why do TELCOS make me pay for internet and seperate fees for little little things I know should be part of a bundle. <br /><br />Point is I am not in control and to make it worse they take over by putting me in contract even further. If they cannot provide my my minute usage in real time how come they are asking me to identify my minutes in advance. <br /><br />At home when I pay for internet I can use many devices, when I pay for cell phone internet, why do I need to pay extra for tether. <br /><br />I hope much to MSFT's surprise Google topples one of the telcos, just enough to shake these lazy telcos. <br /><br />Verizon stopped DROID's multi-touch. These companies need to get their head out and innovate.

[codynews]

"Verizon stopped DROID's multi-touch"<br /><br />Huh?

[teraguru1]

Yes -- http://www.gearlog.com/2009/11/motorola_droid_is_crippled_in.php

[jlt0x]

I hate the termination fees, but there is some rhyme-and-reason for them initially. Cellular phone carriers have negotiated complex terms with cell phone makers to be able to offer many of these phones at fairly low prices. For example, go to the Nokia, Samsung, Sony websites and try to price out a cell phone w/o a service plan ---- the costs of the messaging and smartphones are very high, reaching $700-$800 easily.<br /><br />The contract agreements between service providers &#38; manufacturers compensate for reduced prices for the most complex smartphone. When a customer cancels his service contract agreement a year early --- the service provider "misses out" on the monthly payments would go toward compensating the phone manufacturer. If no termination fees were applied, the service provider would have to pay "out-of-pocket" expenses to cover the "true" cost of the cell phone. The termination fee takes care of that (plus extra pain &#38; suffering b/c they don't have to be so high). And remember, signing for a cell phone is a LEGAL and binding contract that you have agreed to. Terminations fees is the easy way out the agreement as the service provider would be well within their rights to take you to court for not fulfilling your end of the bargain. <br /><br />And in business reality, when a contract is cancelled early, there is usually some sort of penalty fee for the actual cancellation activity. Try to imagine, if say, an automaker contacted you about cancelling their lease agreement with you a year early and that they were sending somebody to collect the car tomorrow. You'd want some type of compensation for them backing out of a legal contract.

[ooprus]

Nokia sells some pretty nice unlocked phones at reasonable prices. I got a Nokia E63 for a friend, for $170. It has WiFi, VoIP, BT, MP3, microSD, passable browser (better that WinMo phones, not as good as an iPhone). My friend put a T-Mobile prepaid SIM in it, and paid $100 for time, which will not expire for a year. Spread over 2 years, that's only about $17/month including the phone. If T-Mobile or AT&#38;T would make a low-usage, long expiration prepaid data service, it would be a great deal. She mostly uses it for occassioanl use. If she keep it 4 years, that may work out to only $12/month.

[RobertAPierce]

Dumb consumers continue to support the cell phone companies and their rip-off two year contracts and plans. Contracts are for suckers.

[cbscowards]

Do the math: T-Mo is $20 per month cheaper if the phone is purchased for $550 instead of $199. The rest of the carriers don't give you a break at all. So it is cheaper in the long run if I sign a contract and get a subsidized phone, even if I decide to break that contract sometime during the period.<br /><br />So it seems to me it would be really dumb to pay full price for a phone just so I can have the satisfaction of not being locked into a contract.

[umbrae]

One thing to be aware of... The FTC has laws that says you can terminate a cell phone contract for service related issues. Just call your provider and tell them you are leaving because of service issues and you want the fees removed or you will complain to the FTC. In most cases they will remove the termination fee. This is because if you complain the FTC has to investigate before the carrier is allowed to proceed with the fee. This can take several years to resolve and counts against them by getting the attention of the FTC. I have done this successfully, twice, with Verizon.<br /><br />Final rule is if you are leaving due to service issues then this is a breach of contract on the providers side.

[Random_Walk]

@cbscowards: Dunno...<br /><br />I have zero problems with paying full price for a phone, then being able to take it to any carrier I want. <br /><br />Problem is, I sincerely doubt that you could buy, say, a Verizon Droid @ full price, then drop Verizon and activate it on AT&#38;T, TMobile, etc. Not because of any nefarious plan or lock per se, but because Verizon's network uses a completely different tech than AT&#38;T and etc, and the phone likely wouldn't be fully usable outside of Verizon.<br /><br />If/when LTE is rolled out universally among all carriers, then maybe it would be worth it to do things euro-style (that is, buy the phone and just to a monthly contract - assuming that the monthly contract plan is sufficiently cheaper than a subsidized contract would be). Until that point, even if you paid full price for the phone, it's still locked in Verizon's network by simple dint of it only being usable on the oddball network tech that Verizon uses.<br /><br />Personally, I'd rather let the employer pay for the cellie, which is why my Crackberry suits me just fine.

[Renegade Knight]

I don't. I just don't have a reasonable option to do anything else.

[Poshie232]

I agree that contracts are dumb, I think you should cancel your contract, pay the ETF if you have to and go prepaid, since I bought my Straight Talk phone I have been saving over $40 per month and make far more calls b/c I have the unlimited everything for $45 per month which you would now pay over $80 per month for on contract. I have the benefits of contract too b/c it's on Verizon's network nationwide so I always have good signal.

[methmouth]

"The phone companies say they must charge a fee to recover the cost if a customer quits his or her service early" <br /> <br />If I buy my phone at full price from my carrier and cancelled my contract early, exactly what cost is the carrier trying to recover by charging an ETF?

[Knightro2]

If you buy your phone at full retail then you aren't required to sign into a contract. That is common knowledge AND mentioned in the article.

[Renegade Knight]

@Knightro2 <br /> <br />The point methmouth made is still valid.

[Knightro2]

@Renegade Knight<br /><br />**The Knights Battle** HA!<br />Ok, how so? If he purchased a phone at full retail he didn't have to sign a contract...if he did then that is his own fault. If say, he bought a new, subsidized phone and signed a contract...then a few months later decided he wanted a different phone and purchased it at full retail..then cancels his contract. The ETF is for the original phone he purchased. So if it is the former and not the latter...there is not a valid point.

[teamster02]

Remember when the iPhone first came out. The consumer was REQUIRED to pay FULL price and REQUIRED to sign a 2 year agreement. In that case, what exactly is the rationalle behind the 2 year requirement, when there is NO subsidy...please explain.

[Tansho]

American wireless companies need to take a lesson from the Europeans and Asians. Sell the phones at full price, and provide one plan that is inexpensive and includes every conceivable option. <br /><br />As for these companies saying the must recoup the cost of losses, hogwash. The only money they are out of is what they lose for being so stupid to sell a phone at such a cheap price.

[teraguru1]

Phone companies are just leeches....outrageous contracts (like romans justified slavery), text in/out network fees, internet fees, fees to send a bill, fees to use the FREAKING phone. <br /><br />If I pay for internet, I want to tether and USE the freaking internet (24/7). But wait there is a fee for that.<br /><br />Droid was a failure, I hope telcos get burned during the holiday and it will AGAIN be their own fault.

[calmor15014]

I guess what I don't get is their attempt to justify the higher ETF by describing how the phone is more complex. And you know what? It shows in the subsidized price tag. I'm sure VZW and others need to subsidize more, but the fact remains that I can get a "dumbphone" for free in most cases, but a smartphone will set me back a couple hundred dollars. Seems like most of that price difference is already being passed on to the consumer. Couple that with the service plans that run $100+/mo for the convenience of having the smartphone, I don't think VZW loses much if anything on the smartphones. The break-even point is probably in the two or three month of service range.

[Knightro2]

No, as a former employee of the wireless industry I can tell you that for an average customer it takes the provider about 13 months to turn a profit on them. That is after a subsidized phone, backend processes, and when you factor in advertising costs. This is why most of the companies went to a 2 year contract instead of the standard 1 year.

[Zoobie]

As a former consumer of the wireless industry, I call bull on Knightro2. The wireless industry is an oligopoly (not a free market) and as such they have no incentive to fix their terrible (and apparently expensive) back-end processes that include inaccurate billing, unresponsive "customer service" reps, poor call quality, and so on. Then, to cover up their general ineffeciencies, they slap lipstick on the pig and show us 30 commercials every hour (I'm looking at you, Verizon). Enough already. Let's make this a free market so that we as consumers have a choice. As others have said, Europe is much more pro-consumer and free market in this arena and we should learn from them.

[opiapr]

It make no sense that they said the $175 fee was before people were walking with more advanced device like they do now. The fact is that when they introduced the $175 fee they will charge you more for a dumb phone than they do today with a smartphone. <br /><br />I know they also inflate the retail price to make it look like they are subsidizing more that they actually do. And a $350 ETF to recover the $100 top they subsidize on a Netbook is way more ridicules. But who will get into a contract to get a netbook is beyond me as anyone is better off getting the netbook at retail and paying month-month.

[khoivu4477]

This is what I have never planned to be on verizon. If i have to pay retail price for a smart phone, the phone should be unlock.

[Sausagebiscuit]

What does this have to do with the article? and Unlocked from what?

[Knightro2]

So you don't have a phone from a U.S. provider then? I'm not aware of any providers in the US that will give you an unlocked phone if you pay full retail.

[stuporglue]

T-mobile will unlock your phone after 30 (90?) days of service. Just call in, and you get the unlock code within 24 hours. <br /><br />My wife and I got our phones unlocked a month or so ago. They didn't even try to deter us.

[marvindmeh]

This should be illegal. If somebody decides to leave a service it is because they are unhappy with the service, and chances are, the company misled the consumer to begin with, which in legal terms, voids the contract. <br /><br />Sprint claims to have the first 4G network (4G networks are nowhere near being implemented. In many instances, 3G networks have not being fully implemented, but they get away with it because it is the 4th iteration of their network); Verizon has the largest 3G network; AT&#38;T has the fastest 3G network (it is a sh*tty network and I would have dropped it if I didn't have to pay to end the contract); and so on. Perfect example: AT&#38;T and MMS.

[Knightro2]

Then a new customer always has then ability to purchase a new phone for the full price and not be locked into a contract. Then, once the figure out if they are happy with the service they can always go back, buy a new phone at a discount and sign a contract. No one is forcing anyone to get into a contract.

[Zoobie]

If I buy a phone at full price, then give me a discount on the monthly service since there are no costs to recupperate.

[Knightro2]

The EFT and Monthly plan costs are different. The EFT is for the subsidized phone..not the service. The service plan is for what you actually use and is the way the provider makes standard revenue. You are comparing apples to orangutans. <br /><br />Just because I purchase a vehicle for cash doesn't mean I should get a discount on service from the dealer or discounted gas.

[Rockin Rich]

Interesting post. Underscores the value of prepaid services like Net10, Straight Talk and TracFone.<br /><br />No ETFs, no contracts, overages, surprises etc.<br /><br />Sure, the phones may not be bling-y enough for some people, but they're rapidly improving.<br /><br />For many of us, though, a basic prepaid phone (Net10 LG-300G) and an iPod Touch provides the best solution of all!

[markdoiron]

My son just bought a T-Mobile phone a couple months ago. He got a steeply discounted price on a MyTouch 3G with two-year FlexPay plan. Then, T-Mobile offered a new rate that interested him--unlimited service for just a dollar or two more each month. But the new rate is non-contract. He contacted T-Mobile and they let him switch the phone to the non-contract rate for a $35 transfer fee. Now, he can terminate his service any time without penalty. Go figure. --mark d.

[biffhenerson]

We are foolish to be signing these contracts. I am just lucky that I have been satisfied with my carrier and phone so the term of the contract hasn't really been an issue with me. <br /> <br />In contrast, my home telephone, gas, and electric are only month to month. They too had initial costs to install the infrastructure. Perhaps even more costly that cell towers as these are actually connect from my home to the vendor. Unlike the other utilities, Cable and Sattelite TV offer sneeky low introductory rates and may also ask for a long time commitment. <br /> <br />The wireless providers have obviously formed an oligopoly. As a result, increased competition has failed to successfully introduce shorter or no contract offerings that support state-of-the-art telephones. <br /> <br />Nothing is free. It's all about making money. Even if you have to deceive the Customer to get it. Shame.

[metomjr]

I don't get how cell phones are so expensive? How does a phone get to cost $550? <br /> <br />They are mass produced, so they should come down in price considerably. <br /> <br />How can a big 42 inch plasma TV cost the same as a phone that makes calls, surfs the web, and check some email? <br /> <br />Not only that, they have laughable amounts of memory on the phone (not talking about the iPhone). <br /> <br />For $550 I would expect a heck of a lot more out of my phone than what's currently offered.

[Sausagebiscuit]

Size matters. That's my guess anyway. Laptops tended to cost more than desktops also. (however that is evening out now.)

[Random_Walk]

The price will only go as high as the market will bear.

[Knightro2]

Yes, they are a mass product but the particular models of phones don't have a very long shelf life. They are constantly discontinuing older models and coming out with new models...because people get bored easily. When you take into account the miniaturization of pretty much a computer to the size of the phone as well as R&#38;D costs...this is why they cost so much. Think how long your TV model has been out. They don't change nearly as often which means they can milk it longer to get their money back for what R&#38;D they had to put into it...hence a lower price.

[Zoobie]

The suggested retail price is set by the cell phone company. The reality is, the Droid probably doesn't cost Verizon more than ~$300, but if you want to buy one without a contract, they'll happily sell it to you for $550. Part of the high SRP is to discourage people from buying phones without a contract.

[cmstratton]

As long as wireless companies give consumers the option to buy a phone without a contract, I don't see a problem with early termination fees. You get a huge immediate benefit for signing that contract. If you think you might switch, don't sign a contract and pay full price for a phone. It's that simple - no government intervention needed.

[teraguru1]

If I decided to buy a phone on my own, than I should have a choice to get Internet on my phone too (none of the telcos allow that). Why isn't my price bundled if I have to get internet on my phone TELCOS know that. <br /><br />Point it this way or that, TELCOS have the ball in their court and that my friend should never be the case when you and I pay for ANY service.

[codynews]

@ teraguru: Guess what, if you spend billions on a nation wide wireless cell/IP network, you get to set the pricing/rules for that network.<br /><br />"I should..."<br /><br />No you shouldn't...<br /><br />Cody

[americanprofile]

There was no mention of a 1 Year Contract. I purchased a Droid Eris with a 1 year contract for $169, a small difference over the 2 year contract price of $99. Check out the 1 year contract price before you buy.

[Sausagebiscuit]

Same, moto droid was $288 online after tax for 1 year. $269 before, so $70 more than 2 year contract. Made sense to me, and I can get whatever is hot a year from now.

[Dust_Puppy]

Verizon must have changed it's policies:<br />A year and a half ago, they charged me for adding a phone (That I already owned) as an extra line a $35 activation fee. 1 Year was required, and the termination fee was $175<br /><br />I find it *very* hard to believe that they changed this policy . . . can the author verify?

[mvadu]

Did you read the artical?.. Its effective from Nov 15 2009.

[L0A3W3cw]

Contracts? Early termination fees? Another monthly bill? Not for me. I don't own a cell phone.

[codynews]

wow, congrats! <br /><br />"Housing payments? Property taxes? pfft. Not for me. I'm homeless"<br /><br />Cody

[Random_Walk]

Clue: You don't need a cell phone to keep warm and dry. ;)

[Seaspray0]

Marguerite Reardon. att is now also requiring you get a data plan with every phone with their 2 year contract. You can decline the data plan for some phones (non-smart phones) but you must pay an extra $50 for the phone's 2 year contract price.

[methmouth]

Shouldnt the ETF depend on the price of the phone instead of a flat fee if it's purpose is to recoup the cost of subsidizing?

[Straightalker]

I still don't get the justification for Verizon's higher termination fee. Aren't they charging for their service anyway? High termination fees is exactly why I switched to Straight Talk prepaid. True I don't have all the bells and whistles, but my phone has a slide-out keyboard which makes texting easy and I'm very happy to have unlimited everything (that includes web) for $45 a month. I prepay my minutes online, but I know Walmart carries Straight Talk if I need to just pop in and pay a bill.

[Sausagebiscuit]

Prepaid is nice. All my other phones are prepaid from various providers. I personally like pageplus... $29.95 for 1200mins 1200texts and 50MB of data, and you can bring your own VZW phone if you want. Or $39.95 for unlimited voice/text and 20mb data.<br /><br />I still have VZW for my main phone, mostly because I need more data than prepaid can offer right now and I like to not be limited to older phones or have to pay full price for one if I bring my own.

[TheLeopardz]

Cell phone companies are running a scam but they all agree together, so people have no choice. Who has to guess how much gas they'll buy in the next month, have to sign a contract, and then get penalized if they buy too much or too little gas? Who has to guess how much they'll spend in groceries and then get penalized for spending too much or too little? Logically, it should be the way it was with long distance charges on landlines - you pay for what you actually use. The $550 per phone cost up front is NOT what it costs Verizon or the other carriers. I'm fine with capitalism and earning a profit, but if your customers don't like your service, that's when companies resort to forcing people into long term contracts. As Rupert Murdock put it, "A monopoly is a terrible thing, unless you have one." Yes, we have choices in carriers, but they ALL use the same unfair policies of forcing people to guess their usages up front. Bad business.

[Sausagebiscuit]

Rupert Murdoch is a bad example. This is the guy who wants to put up pay-walls all over the internet for the news sites that he owns and remove all his content from Google. Of course, he also has double standards such as http://techdirt.com/articles/20091120/0223387019.shtml