Verizon Wireless To Lower Exit Fee
Thursday, June 29, 2006
Verizon Wireless said yesterday that it would reduce the $175 in fees its customers pay to get out of cellphone contracts, setting a precedent among major carriers at a time when consumers and regulators are putting pressure on the industry to change its practices.
Starting this fall, new and existing Verizon Wireless customers will be able to pay less to terminate their contracts, depending on the amount of time remaining, the company's chief executive, Denny Strigl, said at a conference in New York sponsored by the Yankee Group, a research firm.
Details of how the new fee system will work will be released when the deal is launched in the fall, said Jeffrey Nelson, a spokesman for Verizon Wireless.
Carriers typically offer discounts on handsets to attract customers, then lock subscribers into one- or two-year contracts to ensure that the initial subsidy is made back. Early termination fees, which range from $150 to $200, often irk customers who want to switch carriers and must choose between paying the fee and waiting until the contract expires.
The early termination fees ranked third among complaints by wireless consumers in the first quarter of this year, according to the Federal Communications Commission.
In several states, consumers have filed class-action suits alleging that the fees illegally penalize customers. Meanwhile, the industry asked the FCC to consider a petition that would protect the companies' right to charge the fees and take the matter out of the hands of state courts.
Verizon Wireless, the second-largest wireless operator in the United States, is the first major carrier to change its policy. The move goes against most of the companies in the industry, which have long defended the fees as a way to let customers secure better rates on handsets and monthly service. Some smaller carriers, such as Alaska Communications Systems Group Inc. and Dobson Communications Corp., offer prorated termination fees.
"On the number of complaints I see, the number one issue with customers is: 'Why am I paying this?' " Strigl said in an interview. State attorneys general and regulators have also voiced their concerns, he said, adding, "We need to get rid of the wireless industry's black eye."
To avoid those contracts, some customers prefer to buy prepaid phone services, which typically cost more per minute but don't require a long-term commitment to one company. But the vast majority -- about 80 percent -- of the country's 215 million wireless subscribers are under contract.
"If the other [carriers] don't follow, it gives Verizon a huge leg up," said Roger Entner, an analyst with market research firm Ovum. "It's smart -- they're targeting other companies' subscribers."
Speaking at the same conference yesterday, Gary D. Forsee, chief executive of Sprint Nextel Corp., said the company had no plans to alter its policy on termination fees. Cingular Wireless LLC, the nation's largest cellular carrier, said it embraces consumer-friendly policies, but it declined to comment on Verizon Wireless's announcement.
Strigl said Verizon Wireless "ran numbers every which way" and decided it would be a smart financial move for the company. Existing customers are already loyal, he said, and the reduced obligations will probably appeal to new customers.
Verizon Wireless periodically adopts customer-friendly positions ahead of its rivals. Two years ago, Strigl said Verizon Wireless would not participate in a wireless directory. The year before, it endorsed regulatory changes that started allowing cellular customers to keep their phone numbers when switching carriers.
"That is definitely a step in the right direction to eliminate the onerous burden of early termination fees," though carriers could do more to reduce the penalties, said Jeannine Kenney, a policy analyst for Consumers Union, an advocacy group.