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Bill Targets Smartphone Early Termination Fees

By: Roy Mark (E-Week)

December 3, 2009

Sen. Amy Klobuchar follows up on her threat to Verizon Wireless to file legislation in response to the company's decision to double penalty fees to $350 for smartphone mobile plan subscribers who leave their contracts early.

Four U.S. senators, led by Minnesota's Amy Klobuchar, introduced legislation Dec. 3 to set limits on early termination fees. The bill follows a Nov. 10 letter Klobuchar wrote to Verizon Wireless President and CEO Lowell McAdam criticizing the company's decision to double ETFs for certain smartphone customers.

Verizon Wireless said Nov. 5 that beginning Nov. 15 the company would double the penalty fees to $350 for certain subscribers who leave their contracts early. Verizon customers purchasing a smartphone with a service agreement will be subject to an ETF of up to $350 if they disconnect service prior to the minimum term. The $350 ETF will decrease $10 for each month of service completed.

"Changing your wireless provider shouldn't break the bank," Klobuchar said in a Dec. 3 statement. "Forcing consumers to pay outrageous fees bearing little to no relation to the cost of their handset devices is anti-consumer and anti-competitive."

The Cell Phone Early Termination Fee, Transparency and Fairness Act would prevent wireless carriers from charging an ETF that is higher than the discount on the cell phone that the company offers consumers for entering into a multiyear contract. For example, if a wireless consumer enters into a two-year contract and receives a $150 discount with the contract, the ETF cannot exceed $150.
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The legislation would also require wireless carriers to prorate their ETFs for consumers who leave their contracts early so that the ETF for a two-year contract would be reduced by half after one year and to zero by the end of the contract term. In addition, the bill would mandate that wireless carriers would provide "clear and conspicuous disclosure" of the ETF at the time of purchase.

Co-sponsoring the bill with Klobuchar are Sens. Russ Feingold, Jim Webb and Mark Begich.

"Consumers should not be punished with exorbitant cancellation fees if they want to change cell phone service providers," Feingold said. "This is a basic issue of fairness. Just as I was successful in eliminating unfair termination fees for service members deployed overseas, I hope to find the same success with this common-sense proposal."

In her Nov. 10 letter to McAdam, Klobuchar wrote, "Since introducing this legislation, I was pleased to see that Verizon Wireless and other wireless carriers implemented modest plans to prorate their ETFs. That is why I was so disappointed to learn that Verizon Wireless announced that it will soon double its ETFs and charge a $350 ETF for its new smartphones.

"Although Verizon Wireless will prorate the ETF by $10 a month, under the company's new plan, the penalty for leaving the contact halfway through a two-year contract would be $230—still higher than the $175 ETF Verizon Wireless previously charged for these phones."