Senate Introduces Bill To Rein In Early Termination Fees

Yesterday, four senators introduced legislation to make cell phone early termination fees be actually related to the cost of the phone.

The “Cell Phone Early Termination Fee, Transparency, and Fairness Act” or “Cell Phone ETF Act” (we’re not sure where the other TF went) would direct the FCC to require service providers to

  • Prorate a customer’s ETF over the term of the service contract
  • Link the amount of the ETF to the cost the provider paid for the phone, minus whatever price the customer has already paid at the beginning oft he contract
  • Clearly disclose the ETF at the beginning of the contract and the prorated amount on each bill

The FCC would also be instructed to study the effects of ETFs on competition and whether they adversely affect consumers’ ability to freely choose service providers (Hint: yes).

The bill number is S. 2825.

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  1. techphets says:

    Awesome. Time to short AT&T stock.

    • GearheadGeek says:

      Verizon’s the one likely to run afoul of this first, with their brand-new $350 ETF for “advanced” devices. They’re not just applying this to Droids and crackberries, there are several low-function text-messaging phones on the list, as I recall. The way the proration works, the week before the end of your contract you’d still owe a fairly hefty sum for the ETF.

      • Bizdady says:

        With Verizons new ETF if you cancelled in the month before your contract expires, your ETF would still be a shockingly high $120.

      • ahleeeshah says:

        Yeah, this seems more geared toward Verizon to me. With AT&T, their ETF fee is apparently disclosed in multiple places, while with Verizon (according to the FCC letter) you have to click some small print at the bottom of their webpage to get it.

    • mrsam says:

      Don’t worry — AT&T’s lobbyists are on vacation this week. When they’ll get back, there will be sufficient campaign donations given to key senators that by the time the bill comes out of committee, it won’t look anywhere near like it did when it went in.

  2. YouDidWhatNow? says:

    That makes total sense. Therefore, it won’t work.

  3. Bizdady says:

    Id like to actually see what my ETF is each bill as compared to actually having to call and find out whenever I get thoughts of quitting my contract.

  4. pdxazn says:

    They have charged me ETF for extending a contract even without a new phone. This should shut the door on the non-sense. I hope this bill will extend to all ETF in all industries, not just the cellphone.

  5. ubermex says:

    Before someone hops in here about the government getting their hands into private contracts, remember that we gave those airwaves to these companies WITH THE STIPULATION that they be fair to customers with them.

    • Stoli says:

      Hm, good point. I was about to say, they can charge what they want to, but if they’re using airwaves that we gave them…

    • Esquire99 says:

      I suppose at least a partial counter-argument to this is that the government didn’t “create” the wireless spectrum; it merely asserted ownership over it. That aside, I certainly agree that the government gets more say over entities that are “tied” to the government via licenses, but I think this is taking it a step to far. The FCC’s jurisdiction should stop at the technical aspects of the license and the service. I have no problem with the FCC telling the carriers what they can and cannot offer service-wise, but dictating the financial terms of the contract is a step too far for me.

  6. LastError says:

    The old joke in DC is that any “….act” bill invariable does the exact opposite of whatever the title claims it’s about.

    So “Cell Phone Early Termination Fee, Transparency, and Fairness Act” would mean that termination fees are mandatory, totally visible like a threat (imagine seeing it on the screen of your phone every day) and fair for all, meaning the same insane price is levied against everyone.

  7. stevejust says:

    The folks who think strategic default should be jumping into this thread at any moment to say something like: “It’s reprehenisbly immoral to walk away from a cell phone contract. That makes you a horrible person. You made a commitment. Abide by it.” Or something like that.

    When in reality, really it’s just a contract. Yeah, it’s a promise to perform. You should perform. But sometimes things happen, like you move to a new city where coverage isn’t good. Or your employer provides you a phone and says feel free to use it for personal calls. Or whatever….

    And then there are the people who say, well if big companies do that and it’s bad, that doesn’t mean the little guy should too. But to those people I say this: Look at the reason big companies breach contracts, and then look at the reasons the little guy breaches contracts, and if you don’t see a difference, invest in some mental LASIK.

    • stevejust says:

      …who think strategic defaulting is immoral. Jeez, I wish this new comment platform had an edit feature. It’s Friday afternoon…

      • JonBoy470 says:

        No, you’re not defaulting on the contract. The contract gives you the option to terminate prior to the end of the term. You just have to pay a fee in order to exercise that option.

        Now if you terminate the contract and then, say, don’t pay the early termination fee when you get billed for it…

    • wrjohnston91283 says:

      I don’t think many people are saying “you signed a contract…” about cells phones. It’s one thing to say it about a mortgage or some other loan, where a bank lent you money to purchase an asset that you have benefited from, but for many (most?) cell phones, the subsidy is less than the ETF, and the ETF doesn’t decrease over the course of the contract. It’s not like the cell phone company is losing money if you cancel in month 14.

  8. H3ion says:

    http://www.msnbc.msn.com/id/34278771/ns/business-us_business/

    The FCC has already raised questions about Verizon doubling the early termination fee on its smart phones. See above.

  9. StanTheManDean says:

    EFT versus removal of the price subsidy on the telephone.

    Either way, cheap cell phones are farked.

    • Bohemian says:

      No not really. We paid $19 (after rebate) plus a 2 year contract for our kid’s phone. This was supposedly a $100 phone. A month later they showed up at Target for $19.00 as a pay as you go phone (no subsidy). I was more than a little pissed off.

    • jamar0303 says:

      Not at all. And if they do it’s just an excuse by the providers to squeeze more profit off of everyone. Notice how much more you get for your money even without a contract in countries like Japan and China?

    • burquedude says:

      Cheap cell phones aren’t disappearing. If the subsidies for the cell phones disappear then people buy phones somewhere cheaper, and the cell companies won’t have a stranglehold on which phones can be used on their networks.

      Based on this article the bill doesn’t forbid ETF’s at all. The thing that it does do is require the companies to be honest about it and also to charge a smaller ETF after you’ve been under the contract for awhile. Personally I think the ETF should go down by $10-$20 each month you’re under contract, so if you want to break the contract with only two months left the ETF should be less than $50.

      This is the business arrangement we’ve made with cell companies, and the ETF is just a way to deter you from breaking the contract two weeks after you started it. However if you’ve been under contract for 80% of the contracted length the cell company got the money from you to cover the subsidy for the phone, and the right thing is to charge a smaller ETF.

    • johnnya2 says:

      I look at this as the same as Gillette. I have at least 5 Gillette razor handles they have GIVEN me. I am not under an obligation ot continue to purchase there replacement razors for any length of time. If ATT says they will charge $1000 for the iphone, I can bet sprint or verizon or some other provider will jump on free phones without a contract.

  10. cptkincaid says:

    as is now At&t $175 prorated by $5 per month in service. I get a phone for free with my new contract that retails for $300 to buy outright. Now I must pay $300 prorated by $5 per month. I’ll take it as it is now please.

    • Mariushm says:

      The difference between 300$ and the $175 is not lost, it’s just included in the high cost of the plan you’re on (subscription, whatever).
      As the same plan is also offered to those who own their own phones the difference is split to all subscribers.

  11. duckfat says:

    Okay, all you business or government majors follow this bill which everyone can agree is a good idea. Follow it closely through markup and if it ever does become a low look at what the corporations and lobbyist have done to it by the end and you will have the perfect case study/dissertation on what is wrong with American government.

  12. webweazel says:

    Here’s what I don’t get. Okay, you buy a subsidized phone with a contract. Your, let’s say, $49.99 per month plan gets some of the fundage put towards the subsidy, let’s say $10.00 per month. Okay, I get that. BUT, what if you buy the phone outright, sign up for service without a subsidy, meaning no contract, but you still have to pay $49.99 per month for that plan.

    Further, let’s say you get a great phone and it lasts you 4 years with the same company. 4 years later, 2 years out of the contract that fully paid for the subsidy, now on a month-to-month, you’re still paying $49.99 per month.

    Why doesn’t this compute?

    Makes as much sense as the Sprint store chucklehead who told us that in order to change our phone number we’d have to sign a 2-year contract. Yeah, where’s my pen…..to stick in his eye. Nice try Sprint.

    • sardonumspa says:

      Take a look at the new T-Mobile paradigm. They now offer two different service structures that represent exactly what you are suggesting. One is a traditional contract model with a subsidized phone, higher monthly price, and ETF; the other is a full-price phone with a lower monthly price and no contracts.

      After having done the math, the 2 year contract term will get you the same overall cost as the no-contract plan for 2 years. It’s a wash. But you are getting exactly what you ask for, and it works out to your advantage in terms of savings if you are the type to bring your own phone or hang on to a subsidized one for longer than the contract term.

      Now, if only their coverage and phones were better.

      • jamar0303 says:

        Or if their web shop would let you buy a plan without the phone. Especially because I like to use phones that I’ll probably never see on T-Mobile ever due to America’s attitudes to phones in general (just take a look at what Sharp makes apart from Sidekicks- 12MP CCD sensor cameraphone with WiFi is just one of many offerings).

  13. MooseOfReason says:

    How much is the highest ETF?

    How long do phone contracts usually last? Two years?

  14. ap0 says:

    What’s the point of having a contract, then? The contract is not only for a subsidy on the device, but you usually get a lower price on your rate plan price than if you weren’t on a contract. The contract is meant to lock you into both the lowered plan price and a device subsidy. I’m all for consumer protection, but this will basically force cell phone companies to rethink how they price, and could drive up prices for consumers since they won’t be as easily able to penalize a customer for breaking their commitment.

    • razremytuxbuddy says:

      I haven’t had a contract for several years, and believe me, they’ve made no attempt to raise my rate.

      One more point needs to be added to Congress’ bill: The TRUE price of the phone needs to be disclosed; not the inflated price that the companies use to induce you into signing a new contract versus just buying the phone outright. If you’ve ever compared the price of a prepaid phone to the same model phone on a contract offer, the prices aren’t even in the same stratosphere.

      • psm321 says:

        Exactly. I’ve never seen a phone company that offers cheaper plans for contract vs. non-contract. Most won”t let you sign up without a contract though.

        Also, take a look at T-Mobile’s new plans: cheaper if you don’t get a contract. Why? Because you don’t get a phone subsidy either. In fact, their new Even More Plus plans basically already do exactly what this bill is aiming for. You pay a fixed rate for the service itself, and then if you want you can also prorate your device cost over a certain number of months and tack that on to your monthly bill.

  15. Blue387 says:

    Hey, you used my picture! Thanks!

  16. MisterE says:

    This will NOT be a problem for the cell phone carriers. They’ll simply invent a new fee to make up for their losses. Why am I the only one in the world who understands this?

  17. LastError says:

    On the subject of subsidized phones mandating these ETFs…. I had a chance last night to sit down with an elderly relative and review her cellphone contract. She had no idea what her contract term date was or even what she’s paying. It turns out she’s on a 700-minute a month plan in which she uses maybe 100 minutes and thus has 5000 rollover minutes stacked up.

    Anyway, the real point of this was to see if she was eligible for a new phone. It turns out she has a choice: get a new phone through ATT and pay $200 for it plus agree to a contract extension, OR she can go to Walmart and buy the same phone in a GoPhone box for $50 and swap the SIM cards, with no contract extension and save $150.

    How is ATT able to sell the same phone to people who will not have a contract or an ETF for fully $150 less than they’d sell to a contract customer?

    Doesn’t this SEEM to say that the people who agree to the contract are basically voluntarily agreeing to a worse deal, which they then have to endure or else they can also pay that ETF? It seems to me the GoPhone buyers are getting a sweet deal hardware-wise.

  18. madanthony says:

    The reason for ETF’s isn’t just to make up for the cost of the phone. It’s because it’s incredibly expensive for cell phone companies to get new customers – all those annoying Verzion ads aren’t free – so once they get a customer, they want to keep them.

    My guess is that if ETF’s get restricted, phone companies will raise rates to make up for the loss.

  19. haoshufu says:

    don’t matter. Cell companies will just find another to jack your money by raising the cell phone usage cost.

  20. pot_roast says:

    This is a good idea. T-Mobile recently slapped me with a $200 per line ETF, even though I fulfilled my contract YEARS ago and never did have a subsidized phone to begin with because I paid full retail price for one of the phone and used unlocked devices that I had already owned for the other lines. They said I was in a contract because of a rate plan change, and something on the new rate plan was considered “promotional” so it automatically started a new contract, even though I wasn’t on one. This was never mentioned to me either because I certainly would have refused it.

    ETFs really have gotten out of hand.