Early Termination Fee (EFT) Regulation

Verizon Wireless Settles Early Termination Fee Case For $21 Million

The wireless carrier’s decision follows requests by consumers and the FCC to ease up on its EFT policies.

By W. David Gardner
InformationWeek
July 10, 2008 02:56 PM

A push by consumers and the FCC to pressure cell phone service providers to ease their early termination fee (EFT) policies gained more ground this week when Verizon (NYSE: VZ) Wireless agreed to pay $21 million to settle a lawsuit in California.Verizon and other wireless carriers had stonewalled on the issue, but then last October AT&T broke ranks and began relaxing its termination fee rules. AT&T and Verizon Wireless, a partnership of Verizon Communications and Vodafone, are the two largest cell phone providers in the U.S.

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Alan Plutzik, an attorney for Verizon Wireless and other service providers‘ customers, told the Associated Press that the settlement involved the recovery of cash, although he said details of the settlement still have to be worked out with Verizon and approved by a judge presiding over the litigation.Last month, the FCC focused attention on the thorny problem of early termination fees as Commission Chairman Kevin Martin said he favored a nationwide resolution of termination fees. He also suggested that termination fees more accurately track the actual cost of phones given to consumers — a $50 phone would call for a lower termination fee than a $250 phone, for instance. Verizon favors a national approach to the issue, echoing Martin who favors the prorating of fees and avoiding a patchwork of state lawsuits.

Verizon, which didn’t admit any wrongdoing in the California action, said the settlement clears up various multiple claims, according to published reports.

In testimony before the FCC last month, Plutzik cited a case involving Sprint (NYSE: S) and said there is evidence that about 2 million Sprint subscribers paid or were charged early termination fees (EFTs) between July 1999 and March 2007.

“Extrapolating from that figure,” Plutzik said, “the number of cell phone customers of all carriers in the country as a whole who paid or were charged an ETF may be as high as forty to fifty million people. And that does not even include the millions of Americans who did not pay and were charged an EFT but were forced to put up with bad service, overcharges or unfair treatment because they were unable or unwilling to incur an EFT.”

A final decision hasn’t been issued in California courts in the Sprint case. In June, T-Mobile announced it would prorate its EFT charges.

All major service providers have been reviewing and revising their EFT policies in recent months.

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FCC Chairman Outlines Plan for Early Termination Fee (ETF) Regulation

News by Michael Oryl on Friday June 13, 2008. 

Yesterday FCC Chairman Kevin Martin outlined a possible plan for regulating carrier ETFs (early termination fees). Martin said that while he see federal cooperation with state authorities as a requirement, he felt that a “patchwork” of 50 different sets of regulations and the current trend of class action suits was not the best course of action for protecting consumers.

While he did not say that the FCC was going to claim jurisdiction in this matter, he hinted that it was a possibility. His outline for ETF regulation had 5 main points.

1. ETFs should be linked to the cost of the phone (though we believe he meant the amount of the carrier subsidy put towards the final price of the phone).
2. ETFs should be prorated over the life of the contract term (Verizon and AT&T already do this).
3. Any contract should be for a “reasonable” length of time (the chairman failed to clarify).
4. Contract renewals should not cause the ETF to be extended (we assume he means if no new subsidized phone is purchased or received by the consumer).
5. Consumers should have until after they receive their first bill to cancel new service without being forced to pay an ETF of any sort.

Chairman Martin said that he believes ETFs are a legitimate way to recoup legitimate expenses (carrier subsidies), but that he fears they are also being used to inhibit a consumer’s right to choose and ability to move to a new company for service when dissatisfied.

Chairman Martin’s statement, as well as those of the other commissioners and those that testified, can be read at the FCC website.

About the author

Michael Oryl
Michael is the Philadelphia based owner and editor-in-chief of MobileBurn.com. He also operates several other tech sites, including AndroidAuthority.com.

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