The country's four nationwide carriers defended their early termination fee (ETF) policies in separate filings with the FCC yesterday in response to a series of questions the agency posed about the fees.
AT&T, Sprint, T-Mobile USA and Verizon Wireless were given until yesterday to answer questions about how the fees are derived. Google also was asked to explain its equipment recovery fees (ERFs).
The carriers pointed out that consumers have the choice of signing up for a contract and getting a subsidized device or choosing a no-contract option and paying a higher price for a handset. ETFs do not apply to month-to-month service plans or prepaid services.
Verizon Wireless said it is changing the price cards displayed next to devices in its stores to include the amount of ETF for each device. It also reduced the number of devices subject to its $350 ETF – an amount that regulators questioned shortly after it was instituted last year.
A Verizon customer on a one-year or two-year contract who terminates before the end of the term is subject to pay an ETF of either $175 or $350, depending on whether the customer bought a regular or an "Advanced Device" at the time of activation. Advanced Devices include 3G smartphones and netbooks. On Jan. 18, the carrier removed 10 models from the Advanced Device list, although the Palm Pixi Plus and Palm Pre Plus were added since Verizon originally responded back in December to the FCC inquiries about its fees.
All of the carriers argued for ETFs, which help facilitate lower costs of devices. A couple of the filings also said the commission made clear in a 2003 case that ETFs are lawful.
In its filing, Google noted several times that it is "not a wireless network operator," doesn't enter into contracts for mobile service plans with customers and does not charge an ETF – on the Nexus One, that's T-Mobile's domain. It does, however, charge an ERF.
Google said the business rationale for its ERF is straightforward. "The contract between Google and T-Mobile governing the offering of T-Mobile service plans on the [Google] Webstore provides that T-Mobile pays Google a commission for each new T-Mobile subscriber and each existing T-Mobile subscriber that upgrades her or his service plan through the Webstore."
Google's business philosophy is to "pass along the entire amount of any commission to the customer, in the form of a discount on the device retail price. However, where a subscriber cancels her or his service agreement with T-Mobile within a 120-period, T-Mobile seeks full repayment of the commission from Google. To be made whole, Google consequently seeks repayment of the commission from the customer."
Since Feb. 4, the ERF is $150 for new T-Mobile subscribers who cancel within the 14th and 120th days after activation and $50 for existing T-Mobile customers who cancel within the 120-day period.
AT&T's ETF is $175 for all term agreements; the fee is prorated at a reduction of $5 per month. T-Mobile's ETF is $200, with the fee declining over the contract term. Sprint's postpaid service agreements come with a $200 ETF, also is prorated over the term of the contract.