Verizon Says Early Termination Fees Justified
Verizon Wireless defended increased early termination fees for advanced devices as necessary to help recoup network and other operating costs beyond just the expense of subsidizing smartphones. The nation's largest wireless carrier also denied charging usage fees when customers accidentally launch mobile Web browsers.
Verizon was responding Friday to an inquiry from the Federal Communications Commission regarding the doubling of its ETF for smartphones to $350, as well as widespread reports that Verizon is hitting customers with $1.99 charges when they inadvertently access the Web on their handsets.
Explaining the higher ETF, Verizon asserted that the increase was justified not only by the higher wholesale costs of more sophisticated devices compared to regular phones, but also the higher costs tied to selling smartphones. That includes spending more on everything -- from advertising to technical support to running its broadband networks.
"These substantial costs, as well as other related operating costs, are put at risk when customers fail to fulfill a contractual term to which they agreed when they signed up for service and received an advanced device at a heavily discounted price," stated Verizon's letter (PDF) to the FCC.
The wireless carrier also argued that the ETFs give consumers the opportunity to buy high-end phones at significantly lower upfront prices, while also providing Verizon with a steady revenue stream to fund operations.
Verizon Wireless increased revenue 24% in the third quarter to $15.8 billion, driven largely by growing mobile data services. It added 1.2 million new customers in the quarter, bringing its total customer base to 89 million. Gains in Verizon's wireless revenue have helped offset declining sales in its traditional voice business.
Even with the $350 ETF, Verizon told the FCC it still incurs a financial loss from early terminations. The company estimated that its loss from a contract terminated halfway through a two-year agreement would be more than double the remaining $230 fee a subscriber would pay. (Verizon reduces the ETF amount by $10 each month over the life of a contract.)
In regard to accidental data charges, Verizon said no fees are incurred when a customer simply launches a Web browser and lands on the company's mobile home page -- the default setting. Subscribers have complained about getting billed $1.99 for accessing the Web accidentally by hitting a phone button that automatically triggers the browser.
But Verizon maintained that the $1.99 usage fee per megabyte is only applied when a customer navigates away from the launch page. The carrier also explained that most phones include a feature allowing users to lock their screens to prevent accidental browser launches. Certain devices can also be reprogammed for the same purpose.
Verizon previously said it has credited the $1.99 charge to customers who have notified the carrier about minimal accidental data use. It reiterated that subscribers should call customer service to request a credit when they believe they have been incorrectly billed.
The FCC is reviewing Verizon's response. In a statement Friday, the advocacy group Free Press dismissed the Verizon letter as offering only "empty rhetoric" and avoiding the agency's request for specific data.
"Verizon is blowing smoke at the FCC's attempts to protect consumers from their unfair billing practices," said Chris Riley, policy counsel at Free Press. "This letter indicates that Verizon is more concerned with protecting its bottom line than protecting unsuspecting customers from outrageous penalty fees that just can't be justified."
The consumer backlash against Verizon's increased ETF has also spurred action on Capitol Hill. A group of senators led by Amy Klobuchar (D-MN) earlier this month introduced a bill requiring wireless providers to pro-rate ETFs and clearly notify customers about the fee for the duration of their contracts.