Verizon Wireless' recent step to double early-termination fees for high-end handsets has caught the attention of the Federal Communications Commission. The agency Friday sent the nation's largest wireless carrier a letter asking about the rationale behind the move and the types of disclosure Verizon provides customers about the higher ETF.
Last month, Verizon doubled the fee for breaking its smartphone contracts to as much as $350, provoking an outcry from customers and consumer groups who complained that the hike was just a way to keep users from switching carriers.
Verizon has defended the increased ETF as reflecting the higher cost associated with "advanced devices" it sells at discounted prices including BlackBerry phones and the new Motorola Droid. It has said it would only affect the 1% of customers who drop the service in any given quarter.
But the FCC's questions reflected concerns it has about whether Verizon customers are adequately informed about the increased ETF and if it is economically justified.
"What information about the higher ETF does Verizon Wireless provide to prospective customers, and when? How do consumers know whether the increased ETF applies to the device and service plan they would like to purchase?" stated the FCC notice addressed to Steven Zipperstein, general counsel for Verizon Wireless.
Among other things, it also asked about the reasoning behind the higher fees for advanced devices, any trial period during which customers can end service without incurring an ETF, and details about its policy for reducing the fee by $10 each month over the life of a contract.
"It appears that if a customer cancels a two-year contract after 23 months, the customer would still owe an ETF of $120. Is this correct? If the ETF is meant to recoup the wholesale cost of the phone over the life of the contract, why does a $120 ETF apply?" read the FCC inquiry.
The agency separately asked about a recent New York Times article about Verizon customers getting hit with a $1.99 charge for inadvertently accessing the mobile Web. It wants to know the specifics on when the company charges for mobile Internet service.
In a statement issued Friday, Verizon stood by its policy on early-termination fees. "Nobody is required to pay an ETF," said a company spokesperson. "You always have the choice of buying a mobile phone at full price with no ETF. Or you can buy a device at a discount with a 1- or 2-year contract. If you stay with your contract, you don't pay a fee at all."
In regard to the charges for accidental Web access, he said the company heard from very few customers who had that problem and immediately credited them $1.99 per month. "A few months ago we modified our service plans so when somebody accidentally turns on a data service they don't want, and they quickly turn that service off, there's no charge," he said. "Even if this happens a few times a month, there shouldn't be a charge on the bills."
The FCC is not the only government entity to take issue with Verizon's $350 ETF. A group of four U.S. senators led by Amy Klobuchar (MN) Thursday introduced legislation requiring wireless providers to pro-rate ETFs and clearly notify customers about the fee for the duration of their contracts. "Changing your wireless provider shouldn't break the bank," said Klobuchar in a 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 FCC has given Verizon until Dec. 17 to respond to its questions.