FCC Examines Verizon's Doubling of Early Termination Fees

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Barack Obama's consumer-friendly FCC is asking Verizon Wireless to explain why it recently doubled Early Termination Fees for its customers.

The company has until Dec. 17 to explain "the rationale" behind the higher fees.

The inquiry comes after Sen. Amy Klobuchar (D-Minn) introduced a bill that would curb the penalties customers are required to pay for early cancellation of a wireless contract.

On Nov. 15, Verizon raised the early termination fee for "advanced devices" to $350, from $175 earlier.

In previous statements, Verizon has said the increased cost of subsidizing handset prices made it more expensive for the company when customers depart before their contracts are up, justifying the fee increase.

The FCC made its request Friday in a sharply-worded letter to the wireless carrier, specifically questioning how the new ETF is prorated over the life of the customer agreement.

"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?" the Commission asked.

The letter asks a number of questions as to how customers would know about the ETF and other business practices without reading the actual Verizon agreement, seeming to say that pricing issues are too important to be left to the "fine print."

The Commission has already begun an inquiry into ETFs as well as into how carriers disclose contract terms to customers. Verizon's response will become part of both proceedings.

Here is another sample of the questions posted in the four-page letter:

"What information about the higher ETF does Verizon Wireless provide to prospective customers, and when? How do consumers know whether the increased ETF applies to the device and service plan they would like to purchase?

"Please provide a description of whether or how a customer seeking to sign up for Verizon Wireless service by first selecting a device or service plan on the Verizon Wireless website would be able to find out about the levels and terms and conditions of the ETF, other than by calling up the formal Customer Agreement accessible in small type at the bottom of the web page.

"Please also provide a detailed description of how consumers receive relevant information across other retail sales channels, including retail outlets and sales made over the phone (if applicable). Please describe the format in which this information is presented, and provide sample materials."

As someone who has come to not expect much in the way of consumer protection from the FCC, I find the letter encouraging. In it, the Commission also asks about $1.99 Internet access fees that consumers might accidentally incur.

No other carriers have followed Verizon's lead on higher ETF fees, leaving the carrier out its own both competitively and before regulators.

Subsidized handsets make it easier for customers to buy hardware and support a two-year upgrade cycle. The downside is higher monthly service fees and attempts at carrier lock-in, through ETFs and other measures.

The letter makes it clear Verizon has some explaining to do. Consumers should hope the company will back away from the higher fee, now that it has attracted presumably undesired attention in Washington.

David Coursey has been writing about technology products and companies for more than 25 years. He

tweets as @techinciter and may be contacted via his Web site.

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