Currently the contract terms and ETFs (Early Termination Fees) are set by the individual carrier, but most require signing up for 2-year contracts and mandate a payment of $175-200 to get out of that contract. These fees help to recover the startup cost of subsidizing the phones, as well as any other startup costs for signing new customers.
Many consumer organizations find this practice unfair, so in response FCC Chairman Kevin Martin proposed a set of standards for each US mobile carrier to follow. In brief, here is a summary of his proposal:
1. ETFs are to be prorated or go down each month through contract (Verizon and AT&T are now doing this, and Sprint and T-Mobile have announced plans to do it later this year).
2. “Reasonable” contract lengths (how long is reasonable?).
3. Contract extensions shouldn’t refresh the ETF if no subsidized phone is purchased.
4. The more a person pays for the phone, the higher the ETF (doesn’t make sense to me; each phone is subsidized the same no matter how much the customer pays).
5. People will be able to receive their first bill before ETF takes effect (any carrier with a 30-day policy already has this set up; the carriers with 14-day policies would likely need to extend their trial periods).
Each person has their own opinion about the above proposals, and even stronger opinions about contracts and ETFs. However, the mobile providers are excited that the FCC is talking about putting federal regulations in place because they would rather have one standard nationwide instead of one standard for each individual state. Setting one set of regulations would save each company millions of dollars from class action lawsuits.
The FCC will still need to make an official decision, but this is certainly a step in the right direction.
If you liked the post, you might find these interesting too:
- AT&T Now Offering Prorated ETFs
- Want a Droid on Verizon? There’s an ETF Hike For That
- Swedish Consumer Agency mandates total contract phone cost disclosure. Forgets to include data plans
- HTC Sensation will be available on O2 and Orange in the UK on July 8
- China Telecom’s Nokia Lumia 800C will be free on $45/month contract. In stores on March 31