TELECOM Digest OnLine - Sorted: Cell Phone Customers Held Captive by Termination Fees

Cell Phone Customers Held Captive by Termination Fees

Consumer (
Tue, 16 Aug 2005 17:16:13 -0500

Nearly half of U.S. cell phone customers would switch or consider
switching cell phone service carriers to get a lower rate and better
service if they didn't have to pay an average penalty of $170 to cancel
their service contract, according to a new economic analysis and survey
released today by U.S. PIRG (Public Interest Research Group).

"Consumers are captives locked in a cell by early termination fees
preventing them from shopping for better or cheaper cell phone
service," said Ed Mierzwinski, U.S. PIRG Consumer Program
Director. "No cell phone company has to honor its promises if its
customers can't afford to shop around because of unfair penalties."

The report's release coincides with a review by the Federal
Communications Commission, of a petition from the cell phone industry
that, if granted, could preempt, or eliminate, state oversight of Early
Termination Fees.

The fees range from $150 - $240 depending on the company. The report
also follows last week's Nextel/Sprint merger approval, leaving just
four companies to provide more than 80 percent of the cell phone
service in the U.S.

The report is a follow-up to a March 2005 MASSPIRG report: "Can You
Hear Us Now." That survey of 874 Massachusetts cell phone customers
found that 42 percent of consumers reported having a billing problem
with their provider and 68 percent reported dropped calls and other
quality problems.

"Not only does this new survey find that more than three out of four
Americans want these unfair fees eliminated, but our economic analysis
also shows that when you combine the penalties some consumers have
paid with the benefits others have lost or can't afford, these
penalties have cost consumers more than $4.6 billion in the last three
years," said Mierzwinski.

The new report, "Locked in a Cell: How Cell Phone Early Termination
Fees Hurt Consumers" includes analysis of a phone survey conducted by
the polling firm IPSOS North America of 1000 U.S. households in July
2005. Key findings include:

. Nearly half (47 percent) of cell phone customers would "switch
cell phone companies as soon as possible" or "consider switching cell
phone companies" if early termination fees were eliminated.

. More than one out of three (36 percent) of the respondents
replied that the early termination fee had prevented them from

. Nearly 9 out of 10 (89 percent) of the consumers agreed that the
early termination fee is "a penalty to discourage switching cell phone

. Combining the actual costs incurred by the 10 percent of
consumers who switched in the past three years ($2.5 billion) with the
potential benefits others have lost or can't afford ($2 billion), cell
phone early termination fees cost consumers more than $4.6 billion from
2002 to 2004.

. More than three out of four (77 percent) of the consumers
either strongly support (57 percent) or support (20 percent)
elimination of the early termination penalties.

In response to consumer lawsuits in several states, including
California, Florida and Illinois, challenging these early termination
fees as unfair, US PIRG says the cell phone industry has petitioned
the FCC to treat ETFs not as penalties designed to restrict consumer
choice, but as a part of the rates that the companies charge their
customers for cell phone.

"If the FCC were to grant the industry's petition, then the cell phone
industry would try to have state laws inappropriately preempted from
applying to early termination penalties," said Mierzwinski. "In short,
the wireless companies want to stifle competition rather than compete
for the customer's business."

U.S. Rep. Anthony Weiner (D-NY) and 14 other members of Congress sent
a joint letter today to FCC members saying they "strongly urge you to
deny" the petition and "urge you not to take any action that would
preclude states from enforcing their own laws to protect consumers
from unfair and anti-competitive business practices."

Copyright 2003-2005 ConsumerAffairs.Com Inc.

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