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CU Fact Sheet on Cell Phone Contracts

Long Cell Phone Contracts Lock Consumers In “Cell Hell”

Do you feel like the consumer from Ohio who wrote to us about what he called “outrageous penalty fees” for canceling unsatisfactory cell phone service? “I love the conveniences of cell phones but not all the headaches of bill screw-ups and getting stuck in a deal you never imagined in your worst nightmares.”
Now that consumers have the right to keep their cell phone number when changing providers, the providers are responding with better deals-but with one catch-the new deals are often tied to long contract terms, usually two years.
How can we avoid this new trap? Two simple reforms would help shorten our time in “cell hell”-pro-rated contract termination fees and an adequate “free trial” period.
What is my cell phone contract?
Your contract is often called the “Terms of Service Agreement” or “Terms and Conditions of Service.” It is a legally binding agreement between you and your cell phone company covering charges, billing, and other aspects of service.
If you bought your phone plan through a retailer or agent, there may be an additional Terms and Conditions agreement, carrying an additional cancellation penalty.
The Terms and Conditions document is binding and overrides any verbal promises or representations made to you by a sales person. However, sometimes the Terms and Conditions refer to other documents, such as brochures and marketing materials that describe the service plans, making those materials part of the “contract.”
Changing plans or phones with your cell phone company within the period of your contract usually results in an automatic renewal of your contract for the same length of time (usually, another year or two).
Read all documents carefully prior to purchase! Be sure to get all spoken promises in writing. And remember to keep a copy of the Terms and Conditions and related marketing materials and brochures that describe your plan.
See Consumers Union’s Tips for Shopping for Wireless Phone Service.
What is “pro-rating” of early contract termination charges?
Pro-rating refers to reducing the early termination charge based on the length of time remaining in the contract. Most cell phone companies do not pro-rate the early termination fees (Cingular pro-rates the cancellation fees in only 9 states). That means a customer with a two-year contract who cancels after 20 months is charged the same hefty penalty as a customer who cancels after only two months.
Cell phone carriers typically charge early termination fees ranging from $150-$200 per phone. These charges can add up significantly if a family has more than one phone. For example, if a family has four phones on one family plan, the early termination penalty could be as much as $800.
Risk-Free Trial Period
A good deal can quickly turn into a very bad deal if the cell phone does not work where you want to use it. We hear from consumers who sign up for service only to find their home or workplace is a “dead zone” where they can’t make or receive calls.
Most cell phone companies have voluntarily agreed to give consumers a “risk-free” trial period of 14 days, during which you can cancel service without incurring the cancellation fee (but other charges, such as for service and activation will apply). A few carriers offer a 30 day trial period.
Consumers Union believes consumers should be able to “test drive” their phones through at least the first billing period. People need the opportunity to test the call quality of their service. They also need to ensure that the first bill reflects the plan and the price they agreed to at the time of purchase. A cell phone plan can turn into a budget-buster if it includes unexpected charges and fees that add significantly to the bottom line of the bill.
Service Agreements on the Internet:
AT&T Wireless
Sprint PCS
US Cellular
You must visit www.cingular.com and review the “plan terms” for each plan, based on your home zip code.
You must visit www.nextel.com and review the “plan terms” for each plan, based on your home zip code.