FCC Commissioner Criticizes Verizon ETF Defense

FCC Commissioner Mignon Clyburn wasted little time in dismissing Verizon Wireless' defense of its increased early termination fees for smartphones. In a Dec. 23 statement, Clyburn lashed out publicly at Verizon's Nov. 5 decision to double the penalty fees to $350 for smartphone subscribers who end their subscriptions early.

In response to a Federal Communications Commission inquiry about the fees, Verizon Wireless said its pricing structure promotes the national goal of fostering greater adoption and use of mobile broadband services by making advanced devices and services available to those who could otherwise not afford them.

Clyburn, appointed by President Obama earlier in 2009 to fill a Democratic slot on the five-person regulatory agency, called the answer troubling and unsatisfying.

"In particular, I am concerned about what appears to be a shifting and tenuous rationale for ETFs. No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel and store costs,'" Clyburn said. "Consumers already pay high monthly fees for voice and data designed to cover the costs of doing business. So when they are assessed excessive penalties, especially when they are near the end of their contract term, it is hard for me to believe that the public interest is being well served."

The FCC inquiry follows a Nov. 10 letter from Sen. Amy Klobuchar to Verizon Wireless President and CEO Lowell McAdam and the FCC, criticizing the company's decision to double ETFs for certain smartphone customers.

"Changing your wireless provider shouldn't break the bank," Klobuchar said in a Dec. 3 statement. "Forcing consumers to pay outrageous fees bearing little to no relation to the cost of their handset devices is anti-consumer and anti-competitive." Klobuchar and four other Democratic senators on Dec. 3 introduced legislation to set limits on ETFs.

The Cell Phone Early Termination Fee, Transparency and Fairness Act would prevent wireless carriers from charging an ETF that is higher than the discount on the cell phone that the company offers consumers for entering into a multiyear contract. For example, if a wireless consumer enters into a two-year contract and receives a $150 discount with the contract, the ETF cannot exceed $150.

The legislation would also require wireless carriers to prorate their ETFs for consumers who leave their contracts early so that the ETF for a two-year contract would be reduced by half after one year and prorated down to zero by the end of a contract term. In addition, the bill would mandate that wireless carriers provide "clear and conspicuous disclosure" of the ETF at the time of purchase.