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Senator Amy Klobuchar
Senator Amy Klobuchar (D-Minnesota) is expected to introduce legislation this week to protect consumers from excessive early termination fees for ending their cell phone contracts early.
The Cell Phone Consumer Empowerment Act comes a few weeks after Verizon Wireless doubled their cancellation fees November 15 from $175 to $350 for “advanced” mobile phones.
Klobuchar sent a letter to Verizon Wireless President and CEO Lowell C. McAdam, criticizing the company’s decision to increase its Early Termination Fees (ETFs) for new smart phone customers. Klobuchar also sent a letter to Federal Communications Chairman (FCC) Julius Genachowski, urging a review of the Verizon Wireless decision to raise these fees.
“These fees are anti-consumer and anti-competitive and they bear little to no relationship to the cost of the handset device,” said Klobuchar, a member of the Senate Commerce Committee.
Klobuchar’s bill is anticipated to specifically target Verizon Wireless over its decision to double fees for consumers. Although the specific details of how the legislation will control fees is still being worked out, Klobuchar’s bill is expected to force providers to incrementally reduce fees for every month of service a customer completes and possibly set a ceiling on the fee charged depending on the retail price of the phone.
Klobuchar introduced a similar bill during the last session of Congress and many cell phone providers responded by pro-rating cancellation fees for departing customers, typically 1/24th of the fee waived for each month a customer stayed with the provider during a two-year contract. But Verizon Wireless’ decision to double their fee, which could set a new trend in the industry, directly increases prices for consumers, according to Klobuchar.
“Under the company’s new plan, the penalty for leaving the contact halfway through a two-year contract would be $230 – still higher than the $175 ETF Verizon Wireless previously charged for these phones,” Klobuchar wrote to McAdam.
Verizon Wireless is the nation’s largest cell phone service provider. Verizon customers purchasing an Advanced Device (smart phone) with a one or two year service agreement will be subject to an ETF of up to $350 if they disconnect service prior to the minimum term. The $350 ETF will decrease $10 for each month of service completed.
The cell phone industry has defended cancellation fees as necessary because providers subsidize the cost of the cell phones sold to consumers. Customers can purchase phones at the retail price and not be committed to any contract or termination fees. Some advanced handsets can cost well over $500 if purchased without a contract.
Copies of correspondence to McAdam and Genachowski appear below.
November 9, 2009
Lowell C. McAdam
President and CEO
Verizon Wireless
140 West Street
New York, NY 10007
Dear Mr. McAdam:
As you know, I introduced legislation in the last Congress – the Cell Phone Consumer Empowerment Act – that would encourage transparency, competition, and quality service in the wireless market. Among other pro-consumer measures, this legislation would require wireless carriers to pro-rate their Early Termination Fees (ETFs) so that, at a minimum, a consumer exiting a two-year contract after the end of the first year would have to pay only half of the termination fee.
Since introducing this legislation, I was pleased to see that Verizon Wireless and other wireless carriers implemented modest plans to pro-rate their ETFs. That is why I was so disappointed to learn that Verizon Wireless announced that it will soon double its ETFs and charge a $350 ETF for its new smart phones. Although Verizon Wireless will pro-rate the ETF by $10 a month, under the company’s new plan, the penalty for leaving the contact halfway through a two-year contract would be $230 – still higher than the $175 ETF Verizon Wireless previously charged for these phones.
I remain concerned that ETFs – especially at these high prices – unfairly penalize consumers, bear little to no relationship to the cost of the handset device, and are anti-consumer and anti-competitive. In fact, Verizon Wireless’ decision underscores the need for Congress to act and to pass the Cell Phone Consumer Empowerment Act.
I look forward to working with you as I seek to address these concerns.
Sincerely,
Amy Klobuchar
U.S. Senator
November 9, 2009
Julius Genachowski
Chairman
Federal Communications Commission
445 12th Street, SW
Washington, DC 20554
Dear Chairman Genachowski:
As you know, I introduced legislation in the last Congress – the Cell Phone Consumer Empowerment Act – that would encourage transparency, competition, and quality service in the wireless market. Among other pro-consumer measures, this legislation would require wireless carriers to pro-rate their Early Termination Fees (ETFs) so that, at a minimum, a consumer exiting a two-year contract after the end of the first year would have to pay only half of the termination fee.
Since introducing this legislation, I was pleased to see that Verizon Wireless and other wireless carriers implemented modest plans to pro-rate their ETFs. That is why I was so disappointed to learn that Verizon Wireless recently announced that it will soon double its ETFs and charge a $350 ETF for its new smart phones. Although Verizon Wireless will pro-rate this ETF by $10 a month, under the company’s new plan, the penalty for leaving the contact halfway through a two-year term would be $230 – still higher than the $175 ETF Verizon Wireless previously charged for these phones.
Verizon Wireless’ decision shows us once again that the wireless industry cannot police itself and will not, on its own, make its practices more competitive and consumer-friendly. To that end, I urge the FCC to review the recent Verizon Wireless decision as well as the competitive and economic impact of ETFs on wireless consumers.
Sincerely,
Amy Klobuchar
U.S. Senator
Other stories of interest:
- Cell Phone Follies: AT&T Sues Verizon Over 3G Map, T-Mobile Suffers Second Nationwide Outage
- The “Competitive” Wireless Industry At Work: Verizon Wireless Doubling Early Termination Fee – Up to $350 to Get Out
- Coalition of the ‘Willing to Cap’ Complains About Monopolistic Behavior by Big Phone Companies
- Wireless Data Plan Cap Relief? Sort Of
- Verizon Wireless & Google Announce Open Platform Strategic Alliance, AT&T Reverses Course on Blocking Voice Over IP
Much more useful will be if Senator Amy Klobuchar forces the Verizon, AT&T, Sprint and T-Mobile to reduce they monthly fee after the 2 year contract expires. The device (a.k.a the phone) is payed off many times by the end of contract. Or even better to ensure the wireless providers are disclosing the monthly charge for the sponsored devices. (service fee + device fee)
I second that!! ^^ Very good idea!!
I support that idea as well, but anything like this, read consumer-supporting, I gladly welcome. In fact, I’d like to nominate her to replace any of my current anti-consumer, donation pocketing “representatives” currently in office in Kansas, including Roberts, Brownback and Moore. I view them as officers turned traitor against their country/fellow soldiers.
Why don’t we just force cell phone companies, through legislation, to give everyone a free phone and free service?!?! Wouldn’t that be fantastic?! You big government intervention people have no clue about how a business operates. And you have absolutely no clue as to the cost of the cell phones that caused these fees to go up (if you bought these phones off the shelf without a plan directly from the manufactuer, you’d pay anywhere from $800 to $1200 for them). All this legislation does is transfer the high cost of those phones to everyone else who has a cell phone who doesn’t try to weasel out of their plan. The phone companies aren’t going to operate at a loss just because some quasi-socialist legislation is made. Amy Klobuchar should take an economics course or even a simple math course.
I have taken several economics classes and I can tell you your price of $800 – $1200 per phone is wrong. Here is the facts:
1. If the price of the phone is so high and it is the reason for the fees. Why the providers don’t disclose the price on the phone? Why the fee is not determent based on the phone model?
2. Why the providers don’t allow me to pay for the phone on separate loan and to pay my service bill without contract: This is going to reduce their risk against bad consumers!
3. Why the heck the most unlocked phones in EU cost much lower then $800?
4. Why most of the 15″ laptops cost around $500-$600. Do you really want us to believe that Costco and other retails do not make a profit from $500 laptops. They have bigger screen, bigger battery, more high tech plastics for the body, more build-in devices, more powerful CPU’s extra keyboard, HDD and etc.
Just because the big three (AT&T, Verizon and Sprint) had found away to make bigger profit by bundling the phone with your service, we are going to take it for ever. By the way AT&T, Verizon and Sprint are the one benefiting from favorites from the ‘bad’ government. The government give them a monopoly to the spectrum. They provide them with legal protection. Like when they (AT&T and Verizon) are helping the government to spy on us.