Would you switch your cell phone provider if you didn't have to pay that nasty early-termination fee the companies charge customers to get out of their contracts?
Nearly half (47 percent) of cell phone users polled said they would switch or consider switching cell phone service carriers to get a lower rate and better service if they didn't have to pay an average penalty of $170 to cancel their service contract, according to a new survey by U.S. PIRG, the national lobbying office for state Public Interest Research Groups, which are nonprofit, nonpartisan advocacy organizations.
"Early-termination penalties prevent consumers from voting with their feet when their cell phone company treats them wrong," said Ed Mierzwinski, the consumer program director for U.S. PIRG. "Since the cell phone companies know the penalties make switching unaffordable for many consumers, the carriers can get away with shoddy, overpriced service. Eliminating these unfair penalties will let consumers out of the cells they are locked into."
I've certainly been trapped in a contract with a cell phone company I loathed (for bad billing practices I won't go into). But with a $175 early-termination fee, it just wasn't worth it to break the contract with six months to go. But you had better believe the moment my term was up, I was so gone.
The majority of wireless plans involve one- or two-year service contracts. The PIRG report found that ETFs, or early-termination fees, range from $150 to $240, depending on the company.
The PIRG report also found that three out of four survey respondents indicated they would support the elimination of the early-termination penalties.
But CTIA-The Wireless Association, an industry trade group, says early-termination fees are necessary. If consumers don't want to be subject to an ETF, they have the option of signing up for a plan without one, said Joe Farren, director of public affairs for CTIA.
Of course, the better-priced plans often come with the early-termination penalty.
"Without the early-termination clause, people would be gaming the system," Farren said. "People would walk away with a $500 phone for virtually nothing. An early-termination fee allows the wireless provider to recoup the costs of giving a phone to a consumer for a steep discount. Without it, you simply have an economic model that doesn't work."
Farren was adamant that ETFs are not intended to prevent customers from jumping to competitors.
But a number of consumers disagree. So much so that the industry is facing consumer lawsuits filed in several states challenging the fairness of the fees. In response to the lawsuits, CTIA petitioned the Federal Communications Commission in March to rule that an ETF is not a penalty but rather an integral part of a customer's rate plan. Thus, CTIA argues, state courts have no jurisdiction in the matter.
"The time has come for the FCC to confirm and reconfirm its precedents -- which already establish that state regulation of ETFs is prohibited rate regulation," the association said in its petition.
If you are a cell phone user, I hope you get as incensed as I was when you read this:
"The ETF thus provides a measure of predictability to the revenue stream reasonably expected by wireless carriers, enabling carriers to offer attractive initial discounts and monthly pricing to customers willing to make a minimum service commitment and also ensuring carriers some measure of compensation for lost revenue and otherwise unrecoverable upfront costs caused by early terminations."
There you have it, folks.
If you are not receiving satisfactory service from your cell phone carrier and want to switch, the company feels entitled to be paid nonetheless.
I'm sorry. I just don't buy the industry's explanation. Early-termination fees do stop dissatisfied customers from switching to a competitor, which has been made much easier since cell users can keep their phone numbers when they sign up with another company.
U.S. PIRG as well as 15 members of Congress are urging the FCC to reject the cell phone industry's petition and let state courts determine whether these early-termination fees are reasonable. You should, too.
In a society that promotes free enterprise, cell phone users unhappy with their service ought to be able to freely kick their mobile service company to the curb without being excessively penalized.
* On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org.
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