FCC to Hold Early Termination Fee Hearing Today

U.S. Customers Could Look Forward To Nicer Fees

The FCC will hold an open meeting today (PDF) on the topic of Early Termination Fees, bringing in a variety of panelists to discuss the future of a thorny practice that, while rankling consumers, is claimed as necessary by the cellular service industry.

Central to the discussion will be an industry-sponsored proposal that seeks to make massive changes in the way providers handle termination fees: under the proposed changes, customers would receive a 30-day grace period to cancel a contract after they sign it, and in the event of a terminated contract after that time, the applicable fees would be prorated down based on the contract's time remaining.

Traditionally, cell phone companies charge the same termination fee regardless of where a customer is in their contract -- fees stay the same regardless of whether they are 60 days in, or only have 60 days left. This policy, combined with an increasingly skyward rise in the fees themselves, recently resulted in a phalanx of class-action lawsuits against the industry as consumers become bitter over what they perceive to be company lock-in. Providers say the fees are necessary in order to subsidize customers' phones, which are frequently sold far below cost in order to make service plans more appealing.

The new iPhone 3G, with its $199/$299 price point in the United States, will be one of the first phones offered under these new rules. While AT&T customers are still required to sign a two-year agreement to buy the phone, if a customer chooses to terminate his or her contract they will only pay a prorated fee calculated from the time remaining on their contract. Purchasers of the original iPhone will remain bound to the old rules.

Meanwhile, a series of e-mail messages recently revealed by the Associated Press showed that some, if not all, providers in the cell phone industry exempt the government from termination charges.

"The government will never, never accept [a termination penalty] and for the most part I think a lot of the [complaining] is real," wrote Nextel (now Sprint Nextel) former marketing vice president Scott Weiner, in an "confidential" e-mail dated January 2004. It regarded a question of whether or not to assess termination fees for government subscribers that canceled their contract.

As it exists currently, cellular service regulation is handled in a "patchwork" fashion at the state level; industry representatives want the FCC to establish a national regulatory framework instead.

Appearing at the hearing are representatives from the trade group CTIA, DIRECTV, and Verizon, as well as a variety of professors, lawyers, and ordinary consumers.