FCC Opens Inquiry Into ETFs, Questions Carriers, Google

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Expanding its probe into cell phone early termination fees, the Federal Communications Commission Tuesday sent letters to the four major U.S wireless carriers and Google asking about their ETF policies.

The opening of a formal inquiry follows the FCC's probe into Verizon Wireless' doubling of its ETF on smartphones from $175 to $350 in November. It also comes on the heels of last week's launch of the agency's Consumer Task Force, created to help safeguard the rights of wireless consumers.

In the letter sent [PDF], to AT&T, Verizon Wireless, Sprint-Nextel, T-Mobile and Google, the FCC asked the companies to explain the reasoning behind their ETFs as well as how consumers are notified about the fees.

"We recognize that wireless carriers may have various rationales for ETFs. At the same time, these fees are substantial (and in some cases are increasing) and have an important impact on consumers' ability to switch carriers," stated the joint letter sent by FCC Consumer Bureau Chief Joel Guerin and Wireless Bureau Chief Ruth Milkman.

"We therefore believe it is essential that consumers fully understand what they are signing up for -- both in the short term and over the life of the contract when they accept a service plan with an early termination fee."

The companies have until Feb. 23 to respond. In response to a prior letter from the FCC following its ETF hike on high-end phones, Verizon last month told the agency the increased charge covered not only the cost of subsidizing sophisticated handsets, but related operating and marketing expenses as well.

That reply was not well received. FCC Commissioner Mignon Clyburn issued with a withering public statement, calling Verizon's answers "unsatisfying, and in some cases, troubling."

The carrier said it would take a hard look at Clyburn's statement and respond appropriately. Verizon last week limited the number of advanced devices it sells that carry the $350 ETF.

The letters sent to Google and wireless partner T-Mobile Tuesday were also pointed in questioning their ETF policies. Anyone who buys Google's recently launched Nexus One phone with a two-year contract from T-Mobile is required to pay a $350 ETF to Google and a separate $200 fee to the carrier if they drop the service within the first 120 days (but after the 14-day trial period). That's a total of $550 --more than the unsubsidized $530 cost of the phone.

"The combination of ETFs from Google and T-Mobile for the Nexus One is also unique among the four major national carriers," stated the letters to Google and T-Mobile. "Consumers have been surprised by this policy and by its financial impact. Please let us know your rationale(s) for these combined fees, and whether you have coordinated or will coordinate on these fees and on the disclosure of their combined effect."

Responding to he FCC's inquiry on ETFs, wireless trade group CTIA issued a statement defending the legitimacy of the charges. "While we understand that the FCC's Consumer Task Force is only looking into the issue of early termination fees, we hope that there is a recognition by the FCC that these fees are part of the rate and rate structure that allows wireless carriers to, among other things, subsidize phone purchases," it read.

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