Commentary

AT&T Shrugs Off FCC Scrutiny, Hikes Early-Termination Fees

Paying bills It looks as if AT&T is daring the Federal Communications Commission to take stronger action on early-termination fees. In a letter to customers dated May 21, the carrier said it planned to raise the ETF on smartphones and netbooks from $175 to $325 starting June 1.

In the same announcement, AT&T conversely said it also  plans to lower the ETF on basic and quick messaging phones to $150 from $175. Both changes apply only to new and renewing subscribers rather than current ones.

The FCC began an inquiry into ETF policies after Verizon Wireless doubled its fee last November from $175 to $350 for what it calls "advanced devices," including netbooks and smartphones. The agency followed up in January by asking the four major U.S. wireless operators and Google to explain their ETF policies and procedures in detail.

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The carriers have defended the fee hikes as necessary to be able to offer consumers sophisticated devices at heavily subsidized prices while insuring that they can recover the high cost of subsidies if customers end contracts prematurely. In their responses to the FCC in February, they also said customers are given extensive notice about ETF rules during the sign-up process.

Even so, in the interim Verizon has removed 10 phones from a list of 46 advanced devices carrying the $350 penalty, and Google reduced what it called an "equipment recovery fee" on its Nexus One smartphone, from $350 to $150. (Google earlier this month stopped selling the phone directly online.)

Until now, AT&T had been the only carrier to charge a flat $175 ETF on all phones and was looking like the phone consumer's best friend compared to Verizon when it came to early-termination fees. That's over. Perhaps emboldened by the FCC's not forcing Verizon to lower its $350 fee, AT&T decided to jack up its ETF to $325, (though the company may be hoping that staying $25 below Verizon's level will still make it look slightly better than its rival, along with cutting the fee on regular phones by $25.)

The FCC has been quiet on the issue lately, so its response to AT&T's fee increase should be interesting. In its questions to the carriers and Google earlier this year, the agency had seemed skeptical about the necessity of imposing a $350 ETF, especially when someone leaving a carrier in the 23rd month of a two-year contract would end up owing about one-third the full fee.

Verizon's initial reply to the FCC probe drew a sharply worded rebuke from Commissioner Mignon Clyburn in December, calling the carrier's answers on ETF practices "unsatisfying, and, in some cases, troubling." Will she and other FCC commissioners be troubled by AT&T's following Verizon up the fee ladder?

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