FCC Expands Early Termination Fee Probe

The Federal Communications Commission has expanded its investigation into the early termination fees wireless companies charge consumers who leave their contracts early. After initially targeting Verizon Wireless, the regulatory agency Jan. 26 sent letters to AT&T, Google, Sprint and T-Mobile asking how ETFs are charged and if consumers are adequately informed of the ETFs.

This inquiry follows the Jan. 20 launch of the FCC's Consumer Task Force, which was established to promote cross-agency collaboration on the commission's consumer agenda.

"I commend the commission staff for its ongoing and proactive examination of the consumer experience in the wireless marketplace," FCC Chairman Julius Genachowski said in a statement. "This inquiry is the first action by the FCC's Consumer Task Force, which was launched last week to tackle these kinds of issues. I look forward to reviewing the responses to the letters and the recommendations from staff regarding next steps."

Wireless service providers usually require customers to sign two-year contracts in exchange for deeply discounted handsets. ETFs allow carriers to recover their handset investments if consumers opt out of the two-year contract.

Verizon Wireless first sparked the FCC's interest in ETFs Nov. 15 when it was disclosed the wireless carrier would double the penalty fees to $350 for certain subscribers who leave their contracts early. Verizon customers purchasing a smartphone with a service agreement would be subject to an ETF of up to $350 if they disconnected service prior to the minimum term. The $350 ETF would decrease $10 for each month of service completed.

Genachowski said Verizon Wireless' response to questions about its ETF policy raised more questions than it answered. Later, it was disclosed T-Mobile planned to charge an ETF to purchasers that exceeded the price of Google's Nexus One if purchased without a contract.

"These fees are substantial ... and have an important impact on consumers' ability to switch carriers," read the FCC letters sent to the carriers. "We therefore believe it is essential that consumers fully understand what they are signing up for." 

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