FCC seeks info about ETF; AT & T settles
WASHINGTON (AP) -- Federal regulators are asking the nation's largest wireless companies whether they give customers adequate notice about early termination fees for breaking a service contract before it expires.
The Federal Communications Commission sent letters on Tuesday to AT&T Inc., Verizon Communications Inc., Sprint Nextel Corp., T-Mobile USA Inc. and Google Inc. seeking information about their approaches to early termination fees.
Among other things, the FCC is asking about the size of the fees and the rationale for them. It also wants to know whether carriers prorate such fees if a cancellation comes closer to the end of a contract, and whether they offer trial periods that allow new customers to cancel service without being charged a termination fee.
In addition, the FCC is asking why customers who use Google's new Nexus One phone on the T-Mobile network have to pay early termination fees to both companies if they break a contract. The Nexus One phone costs $179 for customers who sign up for a two-year plan with T-Mobile, or $529 for those who purchase an unlocked phone that can be used with any GSM wireless network, including T-Mobile's.
The FCC wrote that early termination fees are substantial, and in some cases going up, and that they "have an important impact on consumers' ability to switch carriers."
It is too soon to know whether the agency is planning to adopt rules to standardize notices about such fees, but it appears to be moving in that direction.
"Our goal is to make the practice of imposing early termination fees clear, understandable and transparent to consumers," said Joel Gurin, who heads the FCC's Consumer and Governmental Affairs Bureau.
The Commission first put the industry on notice back in August, when it began looking into expanding so-called "truth-in-billing" rules, which require phone companies to clearly describe charges on consumer bills. It also opened an inquiry into the state of competition in the wireless industry.
Then last month, the FCC sent a letter to Verizon Wireless asking why the company recently doubled early termination fees on smartphone contracts to as much as $350 from $175. Verizon says it pays device manufacturers more for those phones and bakes subsidies for those devices into the monthly service fees. The company says the termination fees help it recoup costs if a contract is broken.
Gurin said adequate consumer notification is critical because "there is no clear rationale or structure that applies to early termination fees across the industry." Different wireless carriers offer different types of plans with different types of fees -- and in some cases, plans with no fees at all. This can make it difficult for consumers to compare plans offered by different providers, Gurin said.
In a statement, CTIA, the wireless industry's leading trade group, said early termination fees allow wireless carriers to subsidize phone purchases. The group also said all the big wireless carriers offer plans with no early termination fees, including so-called prepaid plans with no contract.
That point was echoed by AT&T and Sprint.
AT&T offers wireless phones with two-year service plans, a "no term commitment" plan, prepaid plans and a month-to-month plan that allows consumers to bring their own device. Sprint offers prepaid plans through its Boost Mobile and Virgin Mobile USA divisions.
Spokesman John Taylor said Sprint Nextel plans include a "consumer-friendly" policy that prorates early termination fees by $10 increments beginning five months into a contract.
For its part, T-Mobile said it will respond to the FCC's questions and "provide it with information that underscores the consumer benefits of our practices in a highly competitive wireless marketplace."
Google had no immediate comment, and Verizon Wireless declined comment.
On a related note, AT&T is paying $18 million to settle claims that it imposed unfairly high fees on wireless customers who wanted to end their contracts.
The settlement covers customers from as far back as 1998. Those who were charged an early termination fee, or ETF, could get as much as $140 back if they canceled a two-year contract just before it was about to expire. Those who canceled earlier would get less.
Those who were never charged an early termination fee can get an AT&T long-distance phone card with up to 200 minutes, or if they have an AT&T contract, choose to have the ETF changed from a $175 flat rate to one that is prorated.
AT&T used to charge an ETF of $175, regardless of how long the customer had left on the contract. Like other carriers, it started prorating the fee in 2008, so customers canceling after a year of service paid less.
Early termination fees recover some of the subsidies that carriers pay to reduce the price consumers pay for new phones. But in several suits AT&T and other carriers faced around the country, customers claimed the fees were illegal because they bore no relation to the carrier's actual costs and discouraged customers from switching carriers. The consumers also complained that carriers would extend the contract periods, sometimes secretly, when customers asked to change minor provisions in their contracts.
Dallas-based AT&T said it "strongly" denies any wrongdoing, and said no court had found it at fault. It's settling to avoid further litigation, it said.
Sprint Nextel Corp. settled similar claims in August for $17.5 million.