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FCC's Clyburn criticizes Verizon Wireless' justification for doubling fees

Federal Communications Commission member Mignon Clyburn said Wednesday that Verizon Wireless’ justifications for raising the fines it charges for canceled contracts are “unsatisfying and, in some cases, troubling.”

Clyburn, a Democratic commissioner, criticized the company's response to an inquiry by the agency earlier this month that asked the nation’s largest cell phone operator to explain why it more than doubled its early termination fees for smart phone customers starting in November.

“Consumers already pay high monthly fees for voice and data designed to cover the costs of doing business,” Clyburn said. “So when they are assessed excessive penalties, especially when they are near the end of their contract term, it is hard for me to believe that the public interest is being well served.”

A Verizon Wireless spokesman said customers always have the choice of purchasing an device at full price that does not come with early termination fees.

"We look forward to further explaining our business to the commissioner after the new year as she suggests, but our letter accurately reflects the facts of this matter," said James Gerace, a company spokesman.

A spokeswoman for FCC Chairman Julius Genachowski declined to comment on Verizon’s letter submitted to the FCC last Friday. The wireless bureau had sent a letter to Verizon earlier in the month on the ETFs, that had increased to $350 from $150. Verizon said the fees were prorated throughout the duration of the one- or two-year contracts, but admitted that there were cases when some users could be charged as much as $120 for leaving their contracts one month early.

Specifically, Clyburn expressed concern with the company’s admission that the ETFs are tied to general administrative costs like advertising and retail store operations.

“In particular, I am concerned about what appears to be a shifting and tenuous rationale for ETFs,” Clyburn said. “No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for ‘advertising costs, commissions for sales personnel, and store costs.”

She also expressed concern that consumers were being charged “phantom fees” for inadvertently pressing a key on their phones that launched the provider's mobile Internet services.

Joel Kelsey, a policy analyst at Consumers Union, said complaints of such charges are common.

“Consumers shouldn’t be bilked by Verizon for accidentally pushing the wrong buttons on their phones. Particularly when they aren’t aware what the consequence is.”

Along with its review of ETFs, the FCC is looking into exclusive handset deals in the wireless industry as part of a larger review on competition in the wireless industry. The cell phone industry defends such partnerships – like that between Apple with its iPhone and AT&T – as a way to differentiate services to consumers. They say they need to charge ETFs to ensure users who are given discounted phones stay in their contracts so network operators can recover the subsidies they pay for the gear.

Mark Cooper, director of research at Consumer Federation of America, said Verizon’s letter showed consumers footed more than the subsidies of those phones with ETFs.

“They have created a fiction that you have to require people to buy into tethered cell devices that have to be subsidized on a monthly contract,” Cooper said. “In the rest of the world there is no such thing and the rest of the world behaves in a completely different way.”

By Cecilia Kang  |  December 23, 2009; 6:15 PM ET
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