FCC Probes Verizon Early Termination Fees - InformationWeek

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12/7/2009
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FCC Probes Verizon Early Termination Fees

The government agency wants to know why Verizon Wireless doubled its cell phone cancellation fees.

The Federal Communications Commission is questioning why Verizon Wireless doubled its early termination fees from $175 to $350.

In a formal letter sent Friday, the government agency asked the nation's largest cellular operator several questions regarding the rationale for the new cancellation policy. The FCC is also seeking answers about how clearly labeled the ETFs are on customers' monthly bills.

Verizon did not respond specifically to the FCC's inquiry, but the mobile operator has said it needed to raise ETFs in order to defray the costs of advanced devices it sells to customers at a subsidized price. For example, the BlackBerry Storm 2 costs about $179 with a new two-year contract, but it costs $539 without a contract or ETF. The unsubsidized price is relatively close to what Verizon has to pay for each device, although it likely gets a bulk discount.

The FCC does not seem to be accepting that rationale though, and it is expecting formal responses by Dec. 17.

"It appears that if a customer cancels a two-year contract after 23 months, the customer would still owe an ETF of $120," the FCC said in the letter. "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?"

The move comes as ETFs are becoming a contentious issue in the mobile space, and four U.S. senators recently introduced legislation to limit these cancellation fees. The legislation would limit the amount carriers can charge for an ETF, as well as make these fees more transparent to end users.

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