Telecoms Early Termination Fees Are For Our Own Good... Promise...
Is it wrong that I think it's kinda cute how the Wireless Telecoms are struggling to find ways to justify their use of early termination fees? Just take a look at what Tom Tauke, Executive Vice President of public affairs and Policy for Verizon had to say about why they charge these fees:
"The fact is that it costs us hundreds of dollars more than the fees we charge to acquire a customer"
And this tid bit from Jm Ciccioni, AT&T Senior Executive and VP for Legal Affairs concerning their fees and their contract with Apple:
"Apple is providing the iPhone on these terms and conditions that it negotiated with AT&T. And if customers don't want to accept these terms, they can buy other devices... People have a choice. They make decisions based on a lot of factors, like features and functionality of the phone and the terms and conditions under which that device is offered. Why should the government intercede on a deal that was struck between AT&T and Apple? I don't think the FCC should single out any one device in making policy."
It's adorable! What Mr Tauke doesn't realize is that EVERY COMPANY spends hundreds of dollars acquiring customers. It's called Marketing. Fortunately for me, I don't have to give Wrigley $30 when I'm done chewing a piece of their gum, mainly because I already paid $2 for when I bought it. And what Mr. Ciccioni must be forgetting is that government regulation on private contracts between companies is about the only thing that saves us from, well, overbearing and excessive charges and fees as well as a lack of innovation. *cough*Microsoft*cough*
So they still think their charges are reasonable, and I think they'll soon be a quaint reminder of how much we let companies walk all over us in the late 90's and early turn-of-the-century. The reality is there is no legitimate reason two competing companies would agree that their anti-competitive behavior is perfectly OK, unless, of course, they realize their fraking consumers with a 10 piece of wood covered in bark, and they both rather like it.
I'm sure this is pretty predictable, but what do you think about early-termination fees? Like 'em, hate 'em, want to burn them in a blazing effigy to all things unholy? Sound off in the comments!
AT&T and Verizon defend early termination fees [CNET]
Jesse James
Posted to Hot Stuff, In Your Pocket, Miscellany on 18 June 2008
· Comments (4)
Other stuff like this: AT&T, early termination fees, Verizon
Within one hour of its unboxing, The One became the undisputed ruler of Tiny's entire home. Buy this or despair.
As consumers, I think we all hate Early Termination Fees. However, to play the devil's advocate for a moment, remember that many telecom companies heavily subsidize their phones for customers entering into contracts in the first place. Telecoms depend on continued service to help mitigate the subsidies offered to new customers on new equipment. Early Termination Fees help discourage those people who come in to get the phones they want at severely reduced prices only to cancel shortly thereafter and take their equipment to other providers.
The price you get for the phone when you sign up, is indeed a drastically reduced price then what the hardware is actually worth. That 'free' phone you got just for signing up? That cost about $150 to $200 of the company's money to give you, with the promise that you would stick around to pay for the service. I used to work with a personally owned franchise of Verizon, and the cost of the cell phones had to be paid in advance. Those phones were then sold at reduced price, where Verizon would pay for the remaining value of the phone, plus a little extra, to the franchise owner.
Phone companies lose money on the physical product (the phone), but make it up with the contracts. Early Termination Fees are the price you have to endure for that upfront discount on the phone you just got.
Don't like it? Buy the phone retail, and see if you can get even 1/3rd of the deal the company offers.
Valid points, all. My question is morphing a bit now though, because I've heard alot of similar opinions, and I can't help if that's just the effect of corporate marketing.
If the only reason they force early termination fees is to pay for subsidized phones, why do they not make a bigger deal about non-subsidized phones? That would be a more cost effective model for the carrier, as there is no initial per customer costs for them to compensate for then (this doesn't count fixed costs, such as network build up and improvements).
These fees are designed to keep the consumer inside the network, with an added benefit of cost recovery. Consumers are loyal lapdogs when they are presented with a product/service they enjoy (Can we say Apple?), and the hassle of switching carriers is quite enough to keep the vast majority of consumers in the network...
So we're back to square one. I think there are two solid options: Offer and promote non-subsidized phones and service plans, and make the fees relative to the hardware. Add some transparency, and say that X phone is subsidized for $200, so your fees will be $200 pro-rated the life of the contract, or Y phone is subsidized $50, so your fees are $50 pro-rated over the life of the contract. Seems much more fare to me.
"If the only reason they force early termination fees is to pay for subsidized phones"
Well, if you assume that's the ONLY reason, then yes, they could have multiple plans to subsidize the cost over time. So that iPhone, with it's retail value of $499 for the 4G (or $599 for the 8G), that could then be spread out over the cost of the plan. Which is, interestingly much more then any early termination fee, because they already do, to an extent, spread out the cost over the payment plans.
A Two Year Contract, the standard in the industry, costs more then the bare minimum for the services you requested, obviously. A chuck of that is to also cover the cost of the phone, and the rest is essentially profit.
The early termination fee is to basically dissuade anyone from terminating early, and thus killing the profit from the hardware and potential profit from continued service.
As for 'non subsidized phones and service plans', I believe they have those in Pay-As-You-Go plans already (not just those cheap phones either, but most phones). That depends a lot on the service carrier as well. I recall Verizon allowed you to have any phone set up to be Pay-As-You-Go, but the cost was very prohibited because you were essentially buying the phone Retail.
Of course, one could also buy the phone with a shorter contract, and pay more for the Hardware, but have a shorter time period that they are 'forced' to stay with the Service Provider. I believe most, if not all, companies offer a 1-Year service plan.