Tuesday, November 10, 2009

The Battle Over Early Termination Fees

Verizon Wireless has drawn fire for its latest move on early termination fees for cell-phone contracts. First, a bit of background. In 2006, the company announced it would prorate early cancellation fees by a small amount for every month a subscriber remains with Verizon. That change earned it some goodwill and helped to reduce consumer ire over the industry's cancellation fees and policies.

Now Verizon Wireless is doubling its early-cancellation fees (to $350) for smartphone contracts, effective November 15. The thinking seems to be that since the company subsidizes the price of these high-end phones, it would like to recoup some of that money in the event a customer wants out of the contract early.

Verizon Wireless's move has refocused public attention on the issue and brought the threat of legislative action. Senator Amy Klobuchar of Minnesota says the higher fee is "anti-consumer" and is preparing to introduce a bill addressing her concerns about the effect on wireless subscribers. However, given all the issues vying for Congressional action, this is unlikely to make it to the top of the legislative list in 2009-2010.

Still, the early cancellation issue is important because it reveals some of the inner workings and complexities of wireless phone pricing. It also contributes to customer confusion and dissatisfaction. Is there a way for marketing to bring more clarity to the situation?

By the way, if you've never read a Verizon Wireless customer agreement, take a look here and get ready for your eyes to glaze over as you scroll through clause after clause after clause. Let me add that I'm a Verizon Wireless customer--but, happily, have not had occasion to request early termination.

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