Some U.S. senators want to set limits on Early Termination Fees (ETFs), but CTIA says the legislation is unnecessary because wireless carriers already pro-rate the fees for customers who end their contracts early.

Yesterday, U.S. Sen. Amy Klobuchar, (D-Minn.); Sen. Russ Feingold (D-Wis.), Jim Webb (D-Va.), and Mark Begich (D-Alaska) introduced the Cell Phone Early Termination Fee, Transparency and Fairness Act. 

The legislation comes after Verizon Wireless said it would double its ETFs from $175 to $350 for certain subscribers who end their contracts early. The bill would set limits on ETFs, requiring wireless providers to pro-rate ETFs and clearly notify customers about the fee, not only at the time of purchase, but for the duration of their contracts.

In a statement, Klobuchar said ETFs are “budget-busters.” The combination of long-term contracts and substantial ETFs have the effect of keeping customers from switching providers, even when those customers are dissatisfied with their service or move their work or home to areas with inadequate service, she says. “Forcing consumers to pay outrageous fees bearing little to no relation to the cost of their handset devices is anti-consumer and anti-competitive,” Klobuchar said.

On Nov. 15, Verizon doubled its ETFs from $175 to $350 for customers buying smartphones with a one- or two-year contract. The ETF decreases $10 for each month of service. At the time, Klobuchar sent a letter to Verizon Wireless President and CEO Lowell McAdam criticizing the company’s decision and urged FCC Chairman Julius Genachowski to review Verizon’s move.

Verizon Wireless spokesman Jeff Nelson says it’s not about collecting fees. “It's about putting state-of-the-art devices into the hands of the most people possible, at affordable prices."

 "A broad array of Americans who might not otherwise be able to afford broadband connections to the Internet with a home PC, or by paying full price for a smartphone, have an affordable way of participating in the online world when they choose a subsidized option.”

“Nobody is required to pay an early termination fee. You always have the choice of buying a mobile device at full price, or at a discount with a 1- or 2-year contract. And if you stay with your contract, you don't pay a fee at all,” Nelson says.

Specifically, the bill would prevent wireless carriers from charging an ETF that is higher than the discount on the cell phone that the wireless company offers consumers for entering into a multi-year contract. For a consumer who enters into a two-year contract and receives a $150 discount with the contract, the ETF would not exceed $150.

CTIA President and CEO Steve Largent said the legislation runs the risk of limiting consumer options in the future. It’s also important to note that “a national framework of legislation will provide the best scenario for maximum consumer benefits, rather than allow states to unilaterally impose unique conditions that ultimately increase costs.”

John Taylor, manager of public affairs at Sprint Nextel, said Sprint already offers pro-rated ETFs as proposed by the senators’ legislation. “We are doing so not because of any legislative action, but because that’s what consumers expect of us. That’s why we don't believe legislation is necessary,” he said in a statement.

“At Sprint, we offer affordable options for consumers, including the ability to purchase phones without an early termination fee,” Taylor said. “If consumers are dissatisfied with the fees imposed by others we are optimistic that they will move their business to Sprint or other carriers who have chosen not to increase fees.”

More Broadband Direct 12/04/09:
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•  Comcast, NBC deal will face tough antitrust review
•  Qwest, Verizon closing call centers
•  PUCs claim Verizon neglects DSL subs
•  Senators Propose Limits on ETFs
•  FCC to Verizon: Explain ETFs, Web Charges
•  Broadband Briefs for 12/04/09