The FCC has begun a formal inquiry into the fees carriers charge their subscribers who end their contract early. The inquiry follows last week’s launch of the FCC’s Consumer Task Force, which was formed to protect the rights of wireless consumers.
In letters sent to Verizon Wireless, Sprint Nextel, Google, T-Mobile USA and AT&T, the FCC asked the companies to disclose their rational behind the fees, as well as how they inform consumers of the charges.
“We recognize that wireless carriers may have various rationales for ETFs,” said FCC officials Joel Gurin and Ruth Milkman in a joint letter to Verizon. “At the same time, these fees are substantial (and in some cases are increasing) and have an important impact on consumers’ ability to switch carriers. We therefore believe it is essential that consumers fully understand what they are signing up for – both in the short term and over the life of the contract – when they accept a service plan with an early termination fee.”
Verizon previously came under FCC scrutiny when it raised its ETF to $350 in November.
The FCC also had some pointed statements toward T-Mobile and Google about the ETFs on the Nexus One. “The combination of ETFs from Google and T-Mobile for the Nexus One is also unique among the four major national carriers,” said Gurin and Milkman in a letter to Google. “Consumers have been surprised by this policy and by its financial impact. Please let us know your rationale(s) for these combined fees, and whether you have coordinated or will coordinate on these fees and on the disclosure of their combined effect.”
CTIA Vice President of Regulatory Affairs Chris Guttman-McCabe emphasized that the association agreed that the transparency of contracts and full disclosure of their terms were “very critical,” but said the ultimate goal should be “to give consumers the choice to pick among various competitive options.”
“While we understand that the FCC’s Consumer Task Force is only looking into the issue of early termination fees, we hope that there is a recognition by the FCC that these fees are part of the rate and rate structure that allows wireless carriers to, among other things, subsidize phone purchases,” he said in a statement. “Additionally, consumers of all of the carriers that received letters from the FCC have multiple options when it comes choosing plans and devices without early termination fees. About 20 percent of Americans have chosen a prepaid plan without a contract. It is also important to note that consumers can avoid ETFs by completing the contract terms.”
The FCC says its probe is a follow up to its August 2009 Notice of Inquiry on Consumer Disclosure. The carriers have until Feb. 23 to file their responses.
The FCC formed its consumer task force after the Government Accountability Office issued a report that recommended the agency strengthen its consumer protection rules. FCC Chairman Julius Genachowski heads the cross-agency task force along with Gurin, who is the chief of the agency’s Consumer and Governmental Affairs Bureau. Milkman is the chief of the FCC’s Wireless Telecommunications Bureau.
