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CONSUMER ADVOCATES URGE FCC TO ‘HANG UP’ ON INDUSTRY PUSH TO RECLASSIFY EARLY TERMINATION FEES AS ‘RATES’
Cell Phone Service Cancellation Penalties Cost Consumers Billions, Economic Analysis Shows
Download the "Locked in a Cell" in .pdf format by clicking here
ALBANY, NY— Consumer advocates, including state Public Interest Research Groups, Consumers Union and the National Consumer Law Center, urged the Federal Communications Commission to “hang up” on a request by cellular service providers to have termination fees considered part of their rate structures and thus beyond state regulation.
"Consumers are captives locked in a cell by early termination fees preventing them from shopping for better or cheaper cell phone service,” said Liam Arbetman, New York Public Interest Research Group Consumer Advocate. "No cell phone company has to honor its promises if its customers can’t afford to shop around because of unfair penalties.”
The groups released a report, “Locked in a Cell,” that shows that nearly half (47%) of all 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 national survey results released today by the groups.
The report’s release coincides with Federal Communications Commission (FCC) review of a petition from the cell phone industry that, if granted, could preempt, or eliminate, state oversight of Early Termination Fees (ETFs), which 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% of the cell phone service in the U.S.
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 or “any action that would preclude states from enforcing their own laws to protect consumers from unfair and anti-competitive business practices.”
"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 Arbetman.
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%) 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%) of the respondents replied that the early termination fee had prevented them from switching.
- Nearly 9 out of 10 (89%) of the consumers agreed that the early termination fee is “a penalty to discourage switching cell phone companies”.
- Combining the actual costs incurred by the 10% 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%) of the consumers either strongly support (57%) or support (20% elimination of the early termination penalties.
In response to consumer lawsuits in several states, including California, Florida and Illinois, challenging these early termination fees (ETFs) as unfair, the cell phone industry has petitioned the Federal Communications Commission (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 services.
“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 Arbetman. “In short, the wireless companies want to stifle competition rather than compete for the customer’s business.”
”Locked in a Cell” recommends:
- The FCC should reject the cell phone industry’s petition and neither Congress nor any federal agency should accede to the industry’s demands to eliminate strong state and local protections.
- Mobile phone companies should eliminate the use of early termination fees and similar unfair practices.
- The U.S. Government Accountability Office (GAO) should study the impacts on consumers, competition and the economy of high concentration and market power in the wireless industry.
“The FCC can promote consumer choice by denying the industry petition or it can keep consumers locked in cell phone hell by siding with industry,” concluded Arbetman.
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