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FCC demands details of Verizon $350 early termination fee

By | December 4, 2009, 11:22am PST

Summary: The U.S. Federal Communications Commission on Friday issued a letter to Verizon demanding more information about the company’s planned $350 early termination fee.

The U.S. Federal Communications Commission on Friday issued a four-page letter (.pdf) to Verizon’s vice president of legal and external affairs demanding more information about the company’s planned $350 early termination fee.

The fee, which is almost double the existing amount, will apply to “advanced devices,” likely including the new Motorola Droid smartphone, RIM BlackBerry Storm2 and HTC Droid Eris.

The FCC is asking Verizon how its customers will be notified of the new ETF, how the formula is calculated for pro-rating customers who are well into their contracts, and what constitutes an “advanced device.”

There are also questions about mobile Web charges for smartphone customers that do not sign up for a data plan.

The FCC has asked for answers by Dec. 17.

[via WSJ]

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FCC, Termination, Smart Phone, Verizon Communications Inc., Federal Government, Workforce Management, Government, Human Resources, Andrew Nusca

Andrew J. Nusca is associate editor of ZDNet and editor of SmartPlanet.

Disclosure

Andrew Nusca

Andrew J. Nusca does not hold any investments in the technology companies he covers.

Biography

Andrew Nusca

Editor

Andrew J. Nusca is an associate editor at ZDNet and editor of SmartPlanet. As a journalist based in New York City, he has written for Popular Mechanics and Men's Vogue and his byline has appeared in New York magazine, The Huffington Post, New York Daily News, Editor & Publisher, New York Press and many others. He also writes The Editorialiste, a media criticism blog.

He is a New York University graduate and former news editor and columnist of the Washington Square News. He is a graduate of the Columbia University Graduate School of Journalism. He has been named "Howard Kurtz, Jr." by film critic John Lichman despite having no relation to him. He lives in his native Philadelphia with his wife, cat and Boston Terrier.

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SMS path is not same as a data connection
kevindarling Updated - 9th Dec 2009
Yes, they're both bits of data sent between the device and cell. Beyond that, they diverge greatly.

When we use email or web, our phone is the device that initiates a data path. The data is shunted to the Internet as soon as possible, to prevent network load. The carrier networks are only involved to ascertain if we have a data plan or not.

When a SMS is sent, the network has to find the recipient wherever they are in the world, and pass the information as a page over internal network control channels. No Internet data paths are involved. Moreover, if the recipient isn't available, the text must be stored for later delivery. Data has no such mechanism.
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Good for starters...we need more of this
itanalyst2@... 4th Dec 2009
Early termination fees
Paying for text messaging in addition to a data plan (it uses the same airwaves)
Locking a cell phone into only one carrier without having to void the warranty or bricking it for another carrier *cough* IPhone *cough*...

The cell phone industry is the ma bell of the communication industry and needs someone to step in and smack them around.
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Not regulated
doug.hanchard@... 4th Dec 2009
It should be understood that the FCC does not have any regulatory tariff's or schedules in place for wireless carriers specific to early termination fees (ETF). The FCC is the appropriate agency to launch a consumer or competitor complaint when it's believe that a carrier has violated certain statutes and reg's.

In most cases such as these, the FCC will do a review and if there's a business practice violation will likely hand over the file to the Federal Trade Commission if it involved interstate juridiction (a vague area with respects to national wireless carriers) or hand over to Department of Justice if there's case to be made for fraud, which in this case, is very unlikely.

If there is sufficient evidence that certain kinds of abuse of such ETF fees are occuring and the company in question has significant or 'monopoly' of market share in specific or all regions, the FCC could review and implement a tariff on such fee's (in this case ETF's) and set the price or formula on how early Termination Fee's may apply to a customer contract.

If the FCC finds that some or all Wireless Carriers are implementing ETF charges that are the same, it could easily trigger a DOJ investigation on price fixing.

I find that this is an unlikely option or action the FCC will act upon since there is sufficient competition in the wireless space that offer different ETF penalties.

It should be noted that regulators in U.S. are not alone with respects to lack of regulations or ETF tariff's for the wireless industry. Canada , U.K., Germany, Australia and New Zealand communications regulators are the same.

The biggest reason this occurs is because it's a component of financial services that subsidize a device along with the communications services provided, traditional areas that are not the perview of communications regulators. That may soon change. The FCC will have to tackle this type of problem with ISP's along with wireless carriers.

In the U.S. the Department of Treasury has no interest in financial fee's charged by telecom carriers on how equipment is financed or leased because normally the fees charged are not within the guidelines that suggest the fees stated in these contracts are excessive or in violation of any finance regulations let alone the fact that telecom carriers are not regulated as banks or financial institutions. (note: this doesn't mean they couldn't start an action, but they never have before.)
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Good point
Muttz 5th Dec 2009
I never thought about the financing aspect of this.

In Canada, we some protection now. If the cell carrier changes your contract significantly, you can get out with no early termination fees.
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Similar to the U.S.
edwards.wb 5th Dec 2009
Most cell carriers have a clause in their contracts specifying by what medium they're able to contact you about contract changes (mail, email, phone, etc.) and a time frame in which you're free to leave without penalty (usually 30-45 days). If they don't, however, then unless they put in the "we can do whatever we want" clause (i.e. contract subject to change without notice at sole discretion of [insert carrier name here]...) Then you, in theory, would have the right to sue them for the sum of the early termination fee since they are terminating the agreement early... That is unless they put in the cover our @$$ clause, which basically says they can drop you at any point, for any reason, without notice.

The problem is compounded by the fact that all of these companies put in the mandatory arbitration clause (this is the one that waives your right to a civil trial and instead leaves the decision to a third party of their choice)

Hmm, when I think about it, pretty much every service contract I've read has included one or both of the first two and both of the last two... Yep, we're screwed here in America... So regardless of who's job it is, I think that some regulatory body needs to step in and set up some consumer protections. At the very least, I think that the practice of mandatory arbitration needs to be looked at so that if there is a problem consumers have some sliver of a chance of fighting it.

Cellular service has become a necessity and while they are technically not a monopoly, the major carriers leave very little room for viable competition and should be subject to the same sorts of regulations that other essential service providing monopolies are.
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Data and text are not the same thing
kevindarling 4th Dec 2009
Data and text are quite different things.

Texts are basically very short phone calls (or at least, the paging ring for one). That's why they're charged like a short call.
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It's all the same...
edwards.wb 5th Dec 2009
It's all data, which uses different protocols which specify how it should be handled, unless you're on an analog network, but since most everything is digital now we won't open that can of worms.

The sad thing is that I can go to my email account, or use a number of free services, or IM clients and send a text message to a user... I can do this through my web enabled mobile phone.

If they really want to save on their bandwidth, then they'll be smart enough to just give me unlimited texts with my data package so they don't have to deal with the extra overhead associated with the fact that just as much data went over their airwaves as I typed my text into a web browser plus the overhead associated with the .html, flash, and whatever other content was on the series of sites I visited to get to whatever web app. I used.

Furthermore, I can get a data plan and use skype, or another similar service and then have essentially unlimited calling.

The end point is that they're stuck on an old paradigm, one in which cell phones are used to make calls, and that's it. Regardless of what type of data it is, they're selling data plans. They should start looking into a paradigm which is indicative of that because once the old, hardwired, home phone dies (it's not really all that far away), then what's the point of the old telephone number? It'll either be about personal domain names or IPv6 addresses.
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If...
alwin3413 7th Dec 2009
you don't want to pay extra for text messages, don't text. The current paradigm is that people are willing to pay to text, so they are charged what they are willing to pay.
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SMS path is not same as a data connection
kevindarling Updated - 9th Dec 2009
Yes, they're both bits of data sent between the device and cell. Beyond that, they diverge greatly.

When we use email or web, our phone is the device that initiates a data path. The data is shunted to the Internet as soon as possible, to prevent network load. The carrier networks are only involved to ascertain if we have a data plan or not.

When a SMS is sent, the network has to find the recipient wherever they are in the world, and pass the information as a page over internal network control channels. No Internet data paths are involved. Moreover, if the recipient isn't available, the text must be stored for later delivery. Data has no such mechanism.
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The feds are asking some pretty good questions
matthew_maurice 4th Dec 2009
"6. It appears that if a customer cancels a two-year
contract after 23 months, the customer would still owe an
ETF of $120. Is this correct? If the ETF is meant to recoup
the wholesale cost of the phone over the life of the
contract, why does a $120 ETF apply?

In other words, if you're doing this to get back what you're
subsidizing on the phone, your math is really bad!

"5. We are interested in learning whether, and to what
extent, the increase in the ETF is the result of increases in
the wholesale price of ?advanced devices? charged by
equipment manufacturers, and whether any such cost
increases are uniform across all ?advanced devices.?

So they're asking that if you've increased the ETF because
device prices have gone up, have they doubled like the
ETF? And if so, have they all doubled?! If the answer is
"no" to one or both, VZW may have some 'splainin' to do.

In reality, this is mostly PR. The FCC is trying to make it
clear that "there's a new Sheriff in town" and they're clearly
trying to shame the wireless carriers into not only being
more transparent in their action, but more rational as well.
Both of those are good news for consumers, but shaming
companies tends to work less well than indictments. We'll
have to see.
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The thing about shaming is right
Lerianis10 5th Dec 2009
It does work much less often than issuing
indictments of the officials at the companies who
put these things into place.
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Good start
paul2011 4th Dec 2009
It is silly when carrier is playing all the financial games with subsidies, upgrades and mandatory data plans. I want my phone without subsidy and I want to pay only for the service. If my 2 year contract is already expired I am financing new phone for somebody else. I do not want to do that and I do not need the new phone. Unfortunately there is no choice like with cable TV companies. Want one specific channel? We have a nice $300/mo package to sell. Does not look like freedom of choice at all.
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Well, wireless carriers are overcharging their customer DRAMATICALLY
Lerianis10 5th Dec 2009
In this country. There is no reason why someone
should be charged 50 dollars a month for even TWO
wireless phones...... maybe half that!

They are basically illegally keeping prices up
through agreements between Verizon, AT&T, and
other companies..... we need more competition or
more regulation, and maybe both!
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How do you figure that ???
doug.hanchard@... 6th Dec 2009
I would like to know how you have to come to the conclusion that:

The carriers are overcharging.

How is it illegal?

Do you have any idea what the operational and capital costs are to run a cellular organisation? If you did, you would realize that the it's not as cheap as you think it is....
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It's called 'abuse of monopoly power'
Lerianis10 7th Dec 2009
And let's get real here: in many places in the
United States, you only have one choice for a
wireless provider, and they are using that
'only one choice' to keep your prices up higher
than they should be.

A lot of people have missed the fact that these
prices have not been going down for a long
time, and that inflation DOES NOT MATTER ONE
WHIT when it comes down to it.

Wireless is a 'mature technology' for the most
part..... it's time to see substantial price
drops like we did for dial-up internet once
broadband came online.
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Why?
alwin3413 7th Dec 2009
If there is only one provider in an area, how is that the providers fault? Rest assured, the providers are not basing their NATIONWIDE prices based on those low density population areas with one choice.

Maybe everybody with mature technology should lower their prices. Free wheels!! Get your free wheels!! Get used to the fact that companies charge what the market will bear. Period. If people will pay it, they will charge it.

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