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Verizon Wireless to FCC: our cancel penalties justified, also goes to all those ads

Verizon Wireless defended today its recent decision to double penalties for smart-phone customers who leave their contracts early, telling federal regulators that it needed to do so to keep up with the rising costs of mobile devices that it is subsidizes for its users. Starting Nov. 15, Verizion Wireless smart phone customers were charged $350 for cancelling their contracts early, compared to previous charges of $150.

The letter drew immediate criticism from consumer groups that said Verizon is unfairly charging consumers for costs unassociated with the phones. Such policies, they say, deter users from switching carriers even when they move to areas without service and can add up to hundreds of dollars of penalties for households that want to terminate service, even close to the end of their contracts.

In a 77-page letter to the Federal Communications Commission, the nation’s largest mobile phone service operator said it makes up the costs of subsidizing phones like the BlackBerry Storm and Droid through service fees in one- or two-year contracts. When customers leave for competitors like T-Mobile, Sprint Nextel or AT&T, Verizon argued, it suffers losses from the discounts given for smart devices. That's the reason why they use early termination fees (ETF) to recover costs when subscribers switch carriers, Verizon said.

And the ETF goes to recover other costs beyond the phone, Verizon said:

Contrary to the implication of the question, the ETF is not limited to the recovery of the wholesale cost of the device over the life of the contract. As explained in response to Question 4, the ETF partially compensates Verizon Wireless for all the costs and risks of providing service, which include advertising, commission, store costs, and network costs.

Those costs shouldn't fall on the shoulders of its users, who aren't buying their phones to pay for Verizon Wireless' ad campaigns, consumer advocates said.

“Those are all costs that should be captured in monthly service, not given as excuses to punish subscribers who want to leave their service,” said Joel Kelsey, a policy analyst at Consumers Union.

He said Verizon doesn’t use revenues from customers who buy phones at full price and pay for month-to-month services for extraneous costs associated with administration and operations of the wireless network.

Early in November, the company quietly notified customers in letters that it would increase ETFs of advanced devices -- which include smart phones like the Storm or Droid. The move set off criticism from consumer groups, bloggers and users, who said the policy hurts consumers, and the FCC asked Verizon to explain the economics and reasoning behind the new policy. Lawmakers introduced a bill in response that would cap termination fees. And a recent federal report showed consumers are unhappy with such contract obligations.

Verizon said its early-termination policy “enables many more consumers, including those of more limited means, access to a range of exciting, state-of-the-art broadband services and capabilities,” according to the letter.

And the phone giant outlined a few ways they are trying ot protected from the fees being too onerous: Users are given 30 days to leave a contract without penalty; a user can buy a phone at full price without signing a long-term contract; and termination fees are prorated throughout the length of the contract.

But they also admitted that a customer with just one month left in a contract could pay as much as $120 to cancel their service.

"First, taking customers who terminate their contracts before the end of the
contract term as a whole, Verizon Wireless still incurs a financial loss from early terminations, even with the $350 ETF," the company said in its letter. "Were Verizon Wireless to prorate the ETF in a manner that would reduce its amount to zero in the last month of the contract, the net losses to the company would be even greater."

By Cecilia Kang  |  December 18, 2009; 4:09 PM ET
Categories:  Early Termination Fees , FCC , Verizon  
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Anything we can do to stick it to the Telecommunications Kabal, the better.

Posted by: tazmodious | December 19, 2009 1:59 AM | Report abuse

if consumers do not like contracts, early termination fees and subsidized phone prices they can always elect to follow the european model and buy minutes or data gigabytes as needed under a prepay relationship with any number of carriers. as a former employee of each of the largest cellular carriers that is what i did when i semi-retired and no longer needed a massive amount of minutes and data monthly nor do i need to have the absolute latest model phone.

Posted by: george32 | December 19, 2009 4:14 AM | Report abuse

Verizon = vulva.

Posted by: bs2004 | December 19, 2009 9:01 AM | Report abuse

JUST SAY NO TO VERIZON! - My wife has a Verizon Wireless account, and had a phone that acted up since day one. They finally replaced the phone for $50 after saying it would be a free warranty replacement.

WORSE: Verizon landline problem - We decided to try FIOS in August. It didn't meet our needs, so we tried to go back to our local cable TV provider, Brighthouse (in Manatee County, FL) only to find that Verizon had switched our phone to a "virtual account" and would not give our phone number back. The cost of maintaining that number was $110/month for four months until Vonage managed to get away from Verizon after multiple tries. The cable company tried five time and finally gave up.

Phone number portability? Not in Verizon-land! We filed a complaint with the FCC, and Verizon responded that our number had already been transferred to another provider, which was not true.

To make life more fun, Verizon is still billing us $110/month and trying to collect even though we are not using any of their services and have not wanted to use their services.

We canceled FIOS (or at least TRIED) to cancel well within their stated 15 day "full refund" trial period.

Be very careful with Verizon. In fact, you probably shouldn't deal with them at all if you don't want to risk experiences like ours.

Posted by: roblimo | December 19, 2009 9:18 AM | Report abuse

Thats why I will never sign a contract with Verizon......NEVER...

Posted by: jsteph23 | December 19, 2009 9:52 AM | Report abuse

"“Those are all costs that should be captured in monthly service, not given as excuses to punish subscribers who want to leave their service,” said Joel Kelsey, a policy analyst at Consumers Union."

Verizon Wireless can capture the costs any way they want. It is not the business of Consumers Union, which has never made a profit in its existence.

Let the market decide. Go somewhere else if you don't like it.

Posted by: BaracksTeleprompter | December 19, 2009 10:36 AM | Report abuse

If Verizon and other TELCO’s would “open” these phones and their networks there would be no need for these “fees” because then everyone could use the phones they have, this is where these guys are making their money. These phones only cost the TELCO’s no more than $100 or less to make but charge us over $300 in some cases for a phone, so yeah I say screw them, make them stop charging the fees altogether.
Now AT&T wants to charge iPhone users a penalty for “over using” data service they already pay for… WTF! How can you penalize someone because your network cannot handle a service that you are supposed to provide… I think the iPhone users should be taking AT&T to court for not providing what they say they could, or at least AT&T should not have an “unlimited” data plan if they cannot handle it.

Posted by: oda155 | December 19, 2009 11:17 AM | Report abuse

I use Verizon for landline and Fios TV, but, I have to say, Verizon sucks (forgive me, but, there is no other way to describe it). I hope the FCC do something to keep Verizon in check !

Posted by: LYang39204 | December 19, 2009 1:10 PM | Report abuse

Most of us respond to media suggestion that we need something when that is far from the truth. That is the basis for our overconsumption of everything from food to living quarters, everything except accurate and relevent information. Verizon is no different than Bank of America. Their basic product is needed. The bulk of those that they market are not. We just tend to want them and much like our justification of the Triple Cheeseburger with a giant wallop of smothered fries and a King sized Milkshake we imagine that our lust is a need. We will continue to pay for this until we stop surrendering to these imagined needs and deal with the withdrawal symptoms. Those may be uncomfortable but we will survive.

Posted by: Draesop | December 19, 2009 1:10 PM | Report abuse

If Verizon :s financing the purchase of hardware then they are acting like a bank and should be regulated like a bank. As it stands, they're happy to use the ETF as an anti-competitive measure.

Posted by: Peggy_M | December 19, 2009 2:00 PM | Report abuse

verizon's definition of competition is financial piracy and blackmailing of consumers. The feds need to stop them.

Posted by: lidiworks1 | December 19, 2009 3:43 PM | Report abuse

Quote: "Verizon Wireless can capture the costs any way they want. It is not the business of Consumers Union, which has never made a profit in its existence.
Posted by: BaracksTeleprompter | December 19, 2009 10:36 AM" Unquote

What part of non-profit do you not understand? What a maroon.

Posted by: Carfiend | December 19, 2009 4:52 PM | Report abuse

Maybe the answer is, "don't subsidize phones." Let buyers pay for the phone they want, and the phone company provides the service.

If a person wants everything a smart phone can do, and they can't afford it, then they have a decision to make; change your current expenses and pay for the phone you want and pay a more reasonable monthly or annual fee for phone usage. but if you're entering into an exclusive agreement with a phone company because you absolutely must have a "smart phone", then bite your bullet and live with your contract; after all, you entered into it knowing rates could change. Or, sign an iron-clad contract that you understand and accept.

Posted by: Dungarees | December 19, 2009 5:43 PM | Report abuse

Verizon is one of them old companies that has been taking advantage of US citizens for over 75 years. I would never do business with these people.

Posted by: askgees | December 19, 2009 6:10 PM | Report abuse

We refused to switch to FIOS because of the early termination penalties. Cable has none of that. Now, our two phones are off the 2 year committment, and, when our daughters phone goes off, well, goodbye Verizon, it will be pay for minutes for us.

Posted by: kamdog | December 19, 2009 9:32 PM | Report abuse

In most of the world, you buy a cell phone, then look for a carrier. Americans can do that with land lines, so why not cell phones?

Posted by: LizBetty | December 21, 2009 1:06 AM | Report abuse

So "those of more limited means [have] access to a range of exciting, state-of-the-art broadband services and capabilities"? Unless they want to or have to terminate early.

Judge Harold Greene is turning over in his grave. Maybe, like Marley's ghost, he and three other spirits will be haunting Seidenberg this Christmas Eve.

Posted by: 54Stratocaster | December 21, 2009 4:08 PM | Report abuse

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