FCC Wades In With Proposal On Regulating Carrier Early Termination Fees

The Federal Communications Commission is wading in on how to handle early termination fees (ETFs), the highly unpopular fee that consumers get slapped with for leaving their carrier before their contract expires. AP reports that FCC Chairman Kevin Martin has come up with a system that would regulate the fees, noting that he was "skeptical" that the number of class-action lawsuits that have sprung up could adequately deal with the issue.

In a Thursday hearing, Martin detailed how he would handle the fees:

? Fees?which can be as high as $225?should be based on the cost of the phone that the customer has bought or received from the carrier. Cheaper phones would yield a lower ETF.

? Fees should be pro rated, reducing over the length of the contract, which AT&T ( NYSE: T) and Verizon ( NYSE: VZ) already do, while other carriers, including T-Mobile and Sprint ( NYSE: S) do not.

? Contracts should be "a reasonable length of time," and any contract that is renewed should not necessarily be subject to a new ETF.

? Lastly, consumers should be allowed to cancel their contract in the first thirty days without incurring an ETF so they can examine their first bill.

Carriers maintain that since they typically subsidize handsets on long-term contracts, they should be able to recoup those costs when a consumer walks early?hence the ETF. But the fees also help pay for the cost of signing up new customers. Consumer advocates, meanwhile, have argued that the real cost to carriers for subsidizing phones is as low as $10, which the carriers have dismissed as flawed math.

The news comes just days after Apple ( NSDQ: AAPL) and AT&T announced that the carrier would be subsidizing the new 3G iPhones. While the cost of the phone itself dropped to $199, AT&T tacked on $10 more to the data plan it requires customers to buy with the iPhone, meaning the overall cost of the phone is actually more than its unsubsidized predecessor by $40.