Consumers Understand, Accept ETFs for Wireless Service, Carriers Say

Verizon Wireless has been a focus of the FCC because it charges a $350 fee for “advanced devices,” twice its normal $175 ETF. Verizon said it already explained the higher ETF in a December letter to the commission, but has made two changes since -- altering the price cards displayed next to devices in company stores to include the amount of the ETF for each device and also reducing the number of devices that are subject to the higher fee. Verizon Wireless initially imposed the higher fee for 46 individual models, but in January removed 10 models from its advanced device list, it said. Two devices have since been added -- the Palm Pixi Plus and Palm Pre Plus.

“Verizon Wireless offers consumers many choices for equipment and service plans, including whether or not to sign a term contract with an ETF,” the carrier said. “Term contracts with ETFs benefit consumers by enabling them to obtain access to devices at a significantly lower up-front cost, while enabling Verizon Wireless to recoup the extraordinarily expensive investment required to support its wireless network and operations and the cost of providing the devices at a substantial discount.”

T-Mobile and its Nexus One phone offered in combination with Google, have also been in the FCC’s cross-hairs. T- Mobile said it charges an ETF of $200 for all devices purchased as part of a two-year contract, which is prorated. Google charges a separate fee for the Nexus One, initially $350 but subsequently reduced to $150. T-Mobile referred questions about that to Google. “Before the launch of the Nexus One, Google (not T-Mobile) determined the amount of Google’s” equipment recovery fee, T-Mobile said.

“Typically, T-Mobile’s ETF covers only a portion of the revenues lost when customers terminate their long-term contracts before the term has ended,” T-Mobile said. “As you are aware, wireless carriers incur significant expenses to attract customers, and to activate and provide services to them. Carriers recover these costs and earn profits for their business through revenues agreed to under the customer’s service contract. T-Mobile’s ETF is not directly tied to specific equipment subsidies (or to any other specific cost element), but rather is designed to recover at least a portion of the expected revenues under the customer’s service agreement. This is the case with all T-Mobile service agreements that include an ETF, including service agreements entered into in connection with the purchase of the Nexus One phone.”

Google told the FCC that consumers who buy the Nexus One “always have the option of buying an unlocked device” online for $529. “This device can be used on almost any compatible GSM network in the world and is not tied to any specific mobile operator,” Google said. “Additionally, in order to offer consumers more choice, we partnered with T-Mobile to make available a discounted (but still unlocked) Nexus One device with T-Mobile service.”

Google has tried to be “as transparent and straightforward as possible with consumers about the terms and conditions associated with purchasing a Nexus One, both with and without a T-Mobile service plan,” the company said. “Google is planning to widen the range of operators and plans available to consumers interested in purchasing a Nexus One, thus providing more choice and benefit to users.” Google noted it’s developing a CDMA version of the phone to be sold by Verizon Wireless in the United States and by Vodafone in Europe. “Google also is actively working to add more operator partners in the U.S. and internationally in the near future, and we will preserve the option of allowing consumers to buy a fully-unlocked version of the device without operator service wherever technologically possible,” the company said.

AT&T said it charges the same $175 ETF for all devices. “Americans have long been familiar with bundled discount offers, term commitments and ETFs. They are a choice that has been available to wireless consumers for more than 20 years -- and one that customers have enthusiastically embraced,” AT&T said. “The meager (and steadily declining) number of complaints from wireless subscribers regarding ETFs indicates that the vast majority of consumers understand what ‘2 year commitment required’ means and make informed decisions when they enter into such a commitment.”

Sprint Nextel said it charges $200 per device for subsidized handsets. “Sprint is not actively pursuing plans to have different ETFs for different devices, but we will continue to evaluate the market,” Sprint said. “Advanced devices such as smartphones and ‘iconic’ devices like the Palm Pre are expensive and generally have a higher subsidy for these types of devices. However, the device subsidy is just one of many factors used in establishing a pricing structure for term contracts with ETFs.”

The letters show that the FCC needs to move forward with a rulemaking requiring truth in billing, said Free Press Policy Council Chris Riley. “Here’s what we know: Wireless bills are too high, and they come saddled with higher hidden fees and penalties; service quality is mediocre at best; and wireless companies are neither reducing prices nor investing enough in improved networks,” Riley said. “The information provided today by the wireless carriers is completely inadequate for the FCC to resolve these excessive and unfair early termination fees plaguing consumers. … The carrot doesn’t seem to be helping -- now it’s time for the stick.”