Four Major Carriers on the Same Page on Early Termination Fees
Sprint Nextel late Wednesday announced that it has joined the other major carriers and will prorate early termination fees over the length of a contract. The four major national carriers’ cutting ETFs may reduce pressure on the FCC to hold a hearing on the fees and on Congress to move forward on legislation requiring prorating, regulatory attorneys for carriers said Thursday. But weighing against those developments was a new report by AARP examining how carriers use ETFs to keep customers from leaving.
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Sprint’s announcement came late the same day T-Mobile announced it will prorate the fees. Sprint said it will start cutting ETFs next year, with the details to come. “We are introducing programs to reward our customers and show our appreciation for their business,” said Bob Johnson, chief service officer at Sprint. “We feel rewarding their loyalty is a first step in gaining their trust.”
AARP cited ETFs as one of several switching costs that keep subscribers from leaving carriers when they're dissatisfied. Other costs include handset replacement and the loss of free connections with customers on the same network. “Research in economics, management, and marketing reveals consistent evidence that consumer switching costs represent an important strategic tool in retaining customers and reducing competition,” AARP said in the study, which it submitted to the FCC. The group said its research found that cancelling a family share plan with four phone numbers could cost a customer as much as $800 in early termination penalties and that customers who buy service through an agent or authorized dealer often face ETFs beyond those imposed by the carrier.
David Certner, legislative counsel for AARP, said Thursday that many unknowns remain about the T-Mobile and Sprint announcements. “Does this apply to current or only new customers? What is the time period of the prorated fees? There’s still a lot of questions.”
The announcements by the major national carriers probably mean that policymakers will feel less pressure to force down ETFs, said an attorney who represents carriers. “It provides further evidence that the market is highly competitive and that one carrier’s move influences the other,” the attorney said. “Since the FCC seems to have trouble trusting markets these days, this should underscore the value of a less invasive regulatory approach. It also underscores that this is a national business no one lowered their ETFs only in California or Kansas.”
But another regulatory attorney said the effect of the announcements is hard to predict and FCC Chairman Kevin Martin may still want to hold a promised en banc hearing to examine ETFs in the wireless and other industries. “The chairman has also expressed interest in other services besides wireless, and AARP just filed a lengthy study… regarding ETF problems, so the FCC will probably continue to monitor the situation and think about next steps,” the attorney said.