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FCC should reject early termination penalty plan

July 17, 2008

FCC Should Reject Early Termination Penalty Plan Written by Wireless Industry

Washington D.C. – With the Federal Communications Commission believed to be close to adopting new rules on the ubiquitous early termination penalties charged by wireless companies, Consumers Union is calling for the agency to fulfill its duty to protect consumers rather than adopt a plan written by the country’s cell phone industry.
The agency is considering new rules written by Verizon Wireless that were recently presented to FCC Chairman Kevin Martin. The Verizon plan, which the company says has the backing of other big cell phone companies, would take away regulatory and legal powers over early termination fees (ETFs) from states and effectively stifle future lawsuits involving ETFs from consumers seeking refunds and other compensation.
More than 14,000 consumers have recently sent letters to the FCC asking the agency to reject the industry-authored, anti-consumer plan put forward by Verizon and its fellow wireless carriers. The letters urged the agency to give consumers a more powerful marketplace and limit exorbitant early termination fees – but not at the expense of their legal right to sue wireless companies for potentially illegal behavior.
“Verizon’s proposal would eliminate any potential state lawsuit that may be filed regarding ETFs,” says Chris Murray, senior counsel with Consumers Union. “In doing so, the FCC would take away rights of recourse for individual consumers and side with big business.”
Wireless providers argue that these fees, which range from $150 to 250 per phone line, are imposed on customers who break a one- or two-year contract in order to recoup losses from subsidized or free phones. However, research has shown that the average cost incurred by wireless companies in providing a free phone is $14.33.
The practice of early termination fees have in effect acted as barrier to a fair marketplace in which consumers can choose the best wireless provider at any time.
“Wireless providers need to eliminate ETFs altogether or reduce them to reflect the actual losses derived from a customer’s premature cancellation of service,” Murray said.
Verizon Wireless and other wireless providers have lobbied FCC Chairman Kevin Martin to create federally-mandated industry standards that alter ETFs to a pro-rated basis—decreasing monthly over the span of the contract.
Verizon Wireless recently agreed to pay $21 million in a settlement on a California class-action lawsuit involving ETFs.
“This settlement shows that Verizon recognizes some degree of culpability regarding the purpose and administering of ETFs,” Murray added.
Chris Murray and Bob Williams