My Take on the Senate Bill Aimed at Cellphone-Termination Fees
Today four U.S. Senators introduced legislation to address early termination fees. These are the fees you pay your wireless carrier when you choose to break a contract for wireless service. (The Senators are particularly frustrated with Verizon Wireless, who recently raised their early termination fees to $350 for smart phones.)
While consumer groups love to complain about these fees, what they don't seem to understand the wireless contract system is what makes handsets affordable. If these fees for breaking a contract were legislated out of existence, it's a certainty that the price of a wireless handset would go up significantly.
For example, your wireless carrier may pay the company which makes your smart phone $500 for the device, but sell it to you for $200 if you sign a two year contract. The gamble is that we will recoup that $300 subsidy over the course of the two years when you consider the cost for data and voice services. The early termination fee -- called ETF -- is our insurance that we can recoup that subsidy if you break your contract before the two years is up.
If the fees were eliminated and your wireless carrier charged you full price, would you be willing to pay $500 for a smart phone? I don't know too many people who would.
Earlier today, Sprint issued the following statement in reaction to the bill:
“Sprint Nextel is already offering pro-rated early termination fees 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.
At Sprint, we offer affordable options for consumers, including the ability to purchase phones without an early termination fee. 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.”
What is your take? Would you be willing to pay $500 or more for a smart phone in exchange of the elimination of an early termination fee and a two year contract? Do you think consumers should be able to sign contracts and walk away from them if they are unhappy?
