In response to an FCC request, Verizon Wireless has clarified its early termination fee (ETF) policies and the rationale behind doubling the fee from $175 to $350 for "advanced devices" like the Motorola Droid. The explanation is audacious and validates just why we need an organization like the FCC to stand up for consumers.
While the established and commonly understood purpose of the ETF is to recover the cost of subsidizing the hardware, Verizon's response expands the scope of the ETF to include a variety of costs and services including the cost of advertising to attract new customers, the cost of providing customer support, the costs associated with upgrading and maintaining the wireless infrastructure, and more.
I'm sorry, but isn't that what customers pay for each month? Advertising, support, and network infrastructure are part of the costs of doing business. All those $50 a month service plans, and $30 a month data plans, and other associated nickel and diming fees--don't those already pay for advertising, support, and network infrastructure?
The Verizon response reminds me of the sort of double-dipping business model that the insurance industry is built on. You pay your auto insurance premiums so that your insurer will cover repairs and compensate you for losses and damage in the event something happens to your car. But, if anything ever happens to your car the insurer will also raise your premiums to offset the "costs incurred" by having to make good on their end of that bargain.
The same logic holds true with property insurance, health insurance, etc. The point is that the premiums being paid month after month are already supposed to pay for the protection. There isn't an additional cost incurred just because the insurer has to actually deliver on its promise.
The same is true with Verizon wireless service. I agree that Verizon, and other wireless carriers, have the right to recover the costs incurred from discounting and subsidizing the cost of the mobile handset, but I reject the notion that it can roll in all manner of other costs that it will continue to incur regardless of a customer terminating early.
There is a difference in the amount subsidized, and potential loss from early termination, between handsets. Rather than setting a blanket ETF, wireless carriers should define the ETF as whatever the difference is between the no-contract price and the subsidized two-year contract price, and prorate that cost over the 24 months of the contract.
Verizon's response is bold, if nothing else. I suppose on some level Verizon should be commended for having the gall to defend the excessive ETF at all. It basically amounts to veiled blackmail to make it cost prohibitive for customers to choose freely between the carriers.
The Verizon ETF policy and response to the FCC validates just why we need the FCC to increase its oversight of the wireless industry. Issues like net neutrality, device exclusivity, and excessive ETF's are critical for consumer fairness. Left unsupervised, there is no historic evidence to suggest that the wireless carriers will ever choose ethics over profit.
Hopefully the FCC will quickly dismiss Verizon's flawed logic and enforce some consumer fairness within the wireless contract ETFs.