FYIJSYK: Cell Phone ETF Regulations…
First of all, I neglected to mention that while the phrase ‘FYI, just so you know’ was originated by our birthing class instructor, the idea to use it as a feature on The Digitante was actually my lovely wife’s idea. This was an egregious mistake and I’ve paid for it every day since I forgot to credit Mrs. Digitante with the idea.
This go round of FYI, Just So You Know, we are going to find out what is going on in the world of cell phone contract early termination fees (ETFs).
Generally in the past, cell phone companies have provided a steep discount on a cell phone if you are willing to sign a lengthy contract (two years in the US, three years in Canada). Its not surprising why: They more than make up for it over the contract period through the expensive monthly plans everyone is so happy to sign up for.
Typically the ETF is about $200. Within the past year or two, most carriers have started prorating the amount of the ETF so it decreases the longer you own the phone.
Verizon Wireless decided to buck that trend and charge a $350 ETF for their new Droid smartphone. The interesting this is that even with the prorating of the ETF, if you cancel your contract, you will still owe over $100 in ETF. This is what caught the eye of congress and the Federal Communications Commission (FCC).
As a result, the US Senate introduced a bill to combat these practices by doing a couple of things:
- Tie the amount of the ETF to the price of the device.
- Adjust the amount of the ETF for the amount that the customer has paid upfront for the device.
- Prorate (evenly?) during the length of the contract. Currently, most carriers have it only prorate after a couple of months and it doesn’t prorate to zero. For example, a Sprint contract cancellation would still cost $50 if canceled in the last month of the contract.
- Provide clear communication on the amount of the ETF as well as communication on your bill of how much of an ETF is remaining at any given time.
There will also be a review of how ETFs affect competition in the cell service.
All in all, this is a really good thing for consumers and I hope this thing gets through. One of the best outcome would be for the consumer to be able to pick how much of a discount they want on the phone and to pick their contract length. Want a $120 phone for free and have a contract for one year? You ETF drops by $10 a month. Want to buy a $600 BlackBerry and sign a contract for 3 years? Congrats, your ETF goes down $20 a month.
In the meantime, I’ll keep an eye on any developments on this bill.
Hat tip to Consumerist for the link to the bill.
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