FCC Questions Verizon $350 ETFs For Smartphones

The Federal Communications Commission has a few questions for Verizon Wireless about their decision to double the early termination fees for contracts that include smartphones and other “advanced devices.”

The questions came in the form of a letter to Verizon’s vice president for legal affairs. The company has two weeks to respond to the questions, and we eagerly await their reply.

Here are selections from a few of the FCC’s questions about the sudden ETF doubling:

What information about the higher ETF does Verizon Wireless provide to
prospective customers, and when? How do consumers know whether the
increased ETF applies to the device and service plan they would like to purchase?
Please provide a description of whether or how a customer seeking to sign up for
Verizon Wireless service by first selecting a device or service plan on the Verizon
Wireless website would be able to find out about the levels and terms and
conditions of the ETF, other than by calling up the formal Customer Agreement
accessible in small type at the bottom of the web page.

Please provide the details of any trial period in which customers may discontinservice without being subject to the increased ETF. Do customers have an
opportunity to review their first bill before the trial period expires? How is this
information communicated to prospective and current customers?

We are interested in learning whether, and to what extent, the increase in the ETF
is the result of increases in the wholesale price of “advanced devices” charged by
equipment manufacturers, and whether any such cost increases are uniform across
all “advanced devices.” Does Verizon Wireless contemplate a similar increase in
ETFs in the near future for any other services and devices?

It appears that if a customer cancels a two-year contract after 23 months, the
customer would still owe an ETF of $120. Is this correct? If the ETF is meant to
recoup the wholesale cost of the phone over the life of the contract, why does a
$120 ETF apply?

We’re particularly interested in the answer to that last question. Verizon previously announced that ETFs would decrease by $10 each month that a smartphone is activated, leaving, as the FCC says, a $120 ETF at the end of a two-year contract.

Washington to Verizon Wireless: Can you hear us now? [Washington Post] (Thanks, Anthony!)

Verizon Wireless To Hike ETFs On “Advanced” Devices


Edit Your Comment

  1. frodolives35 says:

    They are taking it “very seriously” we will see.

  2. jayde_drag0n says:

    and if ETF’s are as a result of recouping the wholesale cost of the phone, then why do i STILL have to pay for an ETF even IF i buy my own phone elsewhere

    • Shoelace says:

      To recoup the wholesale cost of the phone you didn’t let them sell you?

    • Bohemian says:

      The flawed logic of recouping the cost of the phone is now coming back to bite them in the backside. Back when phones were really expensive it made sense. Now the lower end phones retail for around $20.00 yet are still subject to the same lower tier ETF. Just look at the lower end phones Verizon sells with plans and the lower end phones they sell at pay as you go phone. I ended up stuck with a 2 year contract and an ETF on a phone that Verizon started selling for $20.00 a month later. I would be interested to know what the true wholesale cost for Verizon is for a Blackberry or a Droid. Everyone realizes there is a retail markup but I get the impression cell providers are lying about the costs involved.

    • MooseOfReason says:

      I think it’s to recoup the money you would have given them monthly had you still been a customer.

    • DudeIncognito says:

      Most cell phone carriers, including Verizon Wireless, will allow you to activate a line of service without a contract (and no ETF, obviously) if you already have a phone. It’s usually called a “service only” activation. The hard part is finding a sales rep willing to let you in on this, as they are paid on commission for actual contracts.

      • jamar0303 says:

        And more importantly, depending on the phone you want you’ll have to go through hoops to do an activation at all. Example- want a Korea-market phone on Verizon? They won’t do it; you have to go to a third party (usually found in Koreatowns) to do it.

  3. TinaBringMeTheAx says:

    I understand that the cell carrier subsidizes the cost of the phone, and I have no problem with an ETF. But an ETF should be something that keeps them from loosing money, not a profit center and not handcuffs tying you to that carrier.

    The ETF should decrease linearly each much, by 1/24th (or 1/however many months) until it reaches zero at the end of the contract. Build in a little profit, sure, but a $120 penalty for backing out 30 days early on a two year contract? No.

    • Verucalise (Est.February2008) says:

      Whole heartedly agree. If the ETF is $350 at the start of the contract, then it should be $14 a month, not $10. If they are trying to recoup their costs, then they need to charge more for the phone up front. Having a “balloon payment” ETF at the end is acceptable, just not $120!

    • mmmsoap says:

      Exactly. At that rate, it’s cheaper to keep the darn contract and double pay for several months. Except then, you can’t port your phone number over if you are, in fact, jumping ship.

  4. Seano666 says:

    An example of a continuously profitable corporation attempting to bolster profits under the guise of “protecting themselves.” They throw a pinch of protection in there and try to make it seem even with the 10 pounds of profit. Memo to Verizon: if you don’t suck, people won’t leave early. Quit sucking.

    • Verucalise (Est.February2008) says:

      Easier said than done. Their frame of mind: “If we don’t suck as BAD as say, AT&T and Sprint… we’ll have the cutting edge. But in order not to suck as much, we need to act like we care… Oh, I know! We’ll give great prices on certain devices, but hike the ETF’s and any bastards wanting to leave us will pppaaayyy…… pay dearly.”

  5. The Marionette says:

    The ETF should only apply to phones that were free with a 2-year contract, not ones that were already paid for or bought somewhere else. Even then, the ETF should decrease (which is what i think they’re doing now) as the phone gets older because new phones come out very often and by time 2 years are up there really shouldn’t even be an ETF for it the cost of the phone, or at least it should be a very low one.

    • Powerlurker says:

      Why would you sign a two-year contract if you’re bringing your own phone? The monthly price is usually the same on a month-to-month contract, you just don’t get the subsidized phone.

  6. SaraFimm says:

    Why do I have a feeling that now the government is involved, the prices of everything cellphone are going to go up?

    Is it because the cellphone system providers will have to find a new way to pay for refitting old systems to allow users to use their latest and greatest phones while the providers are also trying to make sure they have as much coverage over the world as possible?

    • MooseOfReason says:

      This isn’t the first time the government (FCC or otherwise) has been involved with the phone market.

      • Esquire99 says:

        SaraFimm has a point. Look at landline phone service. It’s way more expensive than it should be for most of the country, all so that Billy Bob who lives out in bum f&^k doesn’t have to pay what it actually costs to provide him service.

        • longtimegeek says:

          If the government didn’t care whether companies allow Billy Bob who lives in BFE to connect to “our” bandwidth for a reasonable cost, then the city dwellers would lose coverage as soon as you left the profitable hive and you would gripe about the dead areas between hives.

          • Esquire99 says:

            Whose to say Billy Bob wouldn’t pay the higher price? You’re simply assuming he wouldn’t and thus the networks wouldn’t build-out in those areas. I think that’s a faulty assumption. Billy Bob understands the value/necessity of a phone and would likely pay for it. Further, the “city dwellers” who travel would likely demand coverage in those areas anyway, prompting the networks to still provide service there.

          • NeverLetMeDown says:

            He’s talking about landlines – the bulk of those “taxes and fees” you see on your cellphone bill are to provide landline phone service to rural customers.

    • jamar0303 says:

      Unless I missed something, no American cellphone company is aiming to have coverage “all over the world”. Even T-Mobile is just focusing on America and (parts of) Europe. Nor do towers need to be refit for the use of the “latest and greatest phones” due to a little thing called backward compatibility. Now for the nice stuff, yes, it has to be refit, and if a given provider doesn’t people will leave it. That’s the free market at work.

      And for a counter-example, the Chinese government is heavily involved in China Mobile. It’s THE largest cellphone company in the world and one of the cheapest to use, too. If prices go up, it’s due to greed, plain and simple.

    • Daemon Xar says:

      Because you (erroneously) believe that government makes everything more expensive.

  7. metsarethe... says:

    While I don’t think ETF’s themselves are a bad thing, you should pay for breaking a contract, but wasn’t it somewhere $150 to $200 to do so? All of a sudden as these phones get more popular (and I would assume cheaper to make) the ETF goes up?

    I agree with other posters, cell phone companies hid behind the “we need to make back our subsidy” excuse.

    Well live by the sword, die by the sword.

    Regardless we will get hit with increases elsewhere to make up for this.

    • Powerlurker says:

      This increase is only on the more expensive smart phones. Part of the reason they did this is because people would sign up for service, get an expensive phone, immediately cancel their contract, pay the termination fee, sell said expensive phone on eBay and still come out ahead.

      • kexline says:

        Fair enough, but retail on most Blackberries is around $450 at this point, if not a little lower. An ETF of (retail minus upfront) * (months remaining) / (months on contract) seems like sufficient disincentive against the ebay trick — by the time it looks cost effective, the phone is outdated. While (retail minus contract) is $350 at the start of the contract on some phones at some times, they’re clearly gouging in the vast majority of cases.

  8. ben says:

    What’s wrong with making ETFs equal to the discount that you get for signing the two year contract? If you break the contract early, pay the whole ETF. I don’t even think prorated ETFs are necessary (though it’s a nice bonus). In exchange for agreeing to stay their customer for two years, they give you a discount on a phone. If you don’t meet that commitment, there’s nothing wrong with them asking for their money back. And if you bring your own phone or pay full price for it, there shouldn’t be an ETF at all.

  9. H3ion says:

    Why not just amortize the subsidy ratably over the life of the contract? If the phone is 100% subsidized (the subscriber pays nothing) then the EFT is the price of the phone divided by the number of months of the contract, declining each month. If it’s only a partial subsidy (say the subscriber pays $200 for a $400 phone) then only the subsidy becomes the EFT and declines the same way.

  10. Silversmok3 says:

    As someone who sold cellphones, the cell carriers are like banks-they feel entitled to charge you for everything.

    If the FCC limits the termination fee cost, the carriers will double the contract time. Or jack up the bill with some made-up fee.Either way, these guys will find a way to keep the tables balanced in their favor.

    Sure, your ETF might be capped at $150, but your contract is 4 years…or some other loophole.

    • dragonfire81 says:

      In Canada, standard cell phone contracts last for THREE years. That could soon be the reality in this country.

    • jamar0303 says:

      And on the other side of the spectrum is Japan, where the carriers give you a 50% discount off your service plan if you sign a 2-year contract. One of them even includes international roaming minutes in their plans along with discounted internet roaming (about US$20-something for 15MB per day) in America (said provider helped make AT&T’s 3G network in Hawaii, though, so that’s why).

    • Loias supports harsher punishments against corporations says:

      Set my contract to 4 years and you’ll probably see me A) Get my own phone and forgo contracts or B) Not use their service

  11. yoursupervisorplease says:

    This is as bad as purchasing an iPhone at the Apple Store where you are forced to sign a contract that’s presented to you on the 2″X2″ screen of some wireless pay-point device they use to ring up purchases in the store. You can’t read it and they can only print it after you sign, at least that was what I was told…

    MetroPCS seems like a better option everyday

    • ahleeeshah says:

      I asked my AT&T worker boyfriend about this, and here’s some copypasta from our conversation:

      “There’s a terms of service book that we can give them and the customer service summary prints out before they sign (or as they’re about to sign) that gives a quick rundown of the return and cancellation policies and what their first couple of bills should look like. Plus the little screen they sign has a paragraph on it saying basically what they’re agreeing to.”

      I then asked if what they could provide was the entire contract, and he said basically it was, and that if the rep you talked with refused to give you something larger to read, he was not doing his job (that was said with much more colorful language). He also added:

      “Either way, you have 30 days to back out of the contract and 3 days to back out without having to pay for anything at all accept possibly the restocking fee on the phone they want to return. And if the customer reads anything in the contract after he’s signed it before he leaves the store that he doesn’t like, he can void the entire transaction right then and there.”

      So yeah. Not exactly fantastic, but even if you sign it and then read it, you can back out of it altogether.

  12. Viciouspixie says:

    I think they should make it easier to buy and use unlocked phones across North America. Of course this will happen when hell freezes over as all the service providers would lose a massive amount of profit.

    This is one of the reasons I’m stuck with Rogers (Canada) I haven’t been locked in on a contract for years now. I tend to buy my phones unlocked for a fraction of the price the provider charges for similar phones under contracts and I also like the ability to have a phone very few other people are using.

    Rogers is the only provider at the moment using sim cards so any GSM unlocked phone is a matter of just popping in the sim card to have your cell running. Other providers (Bell, Verizon, Telus) being different networks are much more troublesome to find available unlocked phones for and you have to call the provider and beg to get the phone programmed with them.

  13. jporterweb says:

    There is something in the business world in which you raise prices or fees in one area to help offset costs in another. I’ve seen comments on here about the price of phones coming down. Truth is there is more subsidizing then ever. More and more and more customers expect $150 up to even $600 phones for free. The higher subsidization of phones is PART of the increase but not all of it. The other part is returning of phones. A customer will come in and purchase a phone that is lets say a $400 phone for $50. They then decide they don’t like that phone and come back in and exchange it for a phone that is the same price. So that is $800 in equipment that they paid $85 for(including the restock fee). This happens all the time. So that in my opinion is the reason for the ETF change. Raising the amount of the ETF offsets the costs of the Worry Free Guarantee.

    • Loias supports harsher punishments against corporations says:

      People feel like cheap/free phones is an obligation because of the lack of portability. Cell phone companies do whatever they can to make you stay with them, including making phone manufacturers produce phones that only work with their service (i.e. T-Mobile memory card design versus other data transfer methods). If there was some sort of Portability in Cellphones Act that guaranteed you could use your own phone for any cell phone carrier, then we as consumers wouldn’t feel like our carrier was obligated to give us a phone to use their service.

  14. Loias supports harsher punishments against corporations says:

    Amen. I