Verizon Defends ETF Smartphone Fees

The carrier defends the doubling of early termination fees for smartphone customers as making smartphones and advanced services available to those who might not otherwise be able to afford them.

Verizon continued its strenuous defense of its ETFs (early termination fees) for smartphones in a Dec. 18 response letter to the FCC (Federal Communications Commission). Verizon's Nov. 5 decision to double the penalty fees to $350 for smartphone subscribers who leave their contracts early has prompted calls for federal legislation limiting ETFs.

According to Verizon's latest defense, the carrier says the company's pricing structure promotes the national goal of fostering the greater adoption and use of mobile broadband services by making advanced devices and services available to those who could otherwise not afford them.

"Verizon Wireless' term contracts with ETFs promote consumer choice and broadband deployment. This pricing structure enables Verizon Wireless to offer wireless devices at a substantial discount from their full retail price," Verizon wrote in response to the FCC's Dec. 4 inquiry about the fees. "By reducing up-front costs to consumers, this pricing lowers the barriers to consumers to obtaining mobile broadband devices. It thus enables many more consumers, including those of more limited means, access to a range of exciting, state-of-the art broadband services and capabilities."
Verizon also said customers are fully informed of the ETFs.
"Consumers are protected by Verizon Wireless' detailed disclosure the Worry Free Guarantee, which allows customers to terminate within 30 days of activation without an ETF, and by the monthly reduction in the ETF amount," the letter states.
The FCC inquiry follows a Nov. 10 letter from Sen. Amy Klobuchar (D-MN) to Verizon Wireless President and CEO Lowell C. 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 introduced legislation Dec. 3 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 pro-rate 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 pro-rated down to zero by the end of a contract term. In addition, the bill would mandate wireless carriers to provide "clear and conspicuous disclosure" of the ETF at the time of purchase.