Verizon Wireless doubles early-termination fee for smart-phone users

Critics say charges intended to prevent customers from defecting; company says it offsets costs of pricey handsets

David Lazarus

Tribune Newspapers

December 4, 2009

Before you go shopping for a new smart phone this holiday season, keep this in mind: Verizon Wireless, the largest provider of mobile-phone services, has doubled its early termination fee for high-end handsets if you decide to go with a different carrier.

The company used to slap you with a $175 charge for jumping ship after a 30-day trial period. Now that penalty is $350. The fee applies to BlackBerrys, the much-touted new Droid and other smart phones capable of sending and receiving text messages and e-mails and accessing the Internet.

"We increased the early-termination fee for advanced devices to reflect the higher costs associated with offering those particular devices to consumers at attractive prices and investing in our network to support these devices," said Ken Muche, a spokesman for Verizon Wireless. "These costs are higher because advanced devices require more complex chipsets, microprocessors and licensed software that perform more functions than other phones."

But consumer advocates and some customers say high early termination fees are little more than a way to hold people hostage.

Denise Netzley, 46, who hadn't been aware of the $350 fee as she shopped for a smart phone at a Verizon Wireless store, said those fees should be clearly posted.

Muche said Verizon smart-phone customers can choose to not have a two-year contract and can pick a one-year plan or pay on a month-to-month basis.

But if you opt for month-to-month payments, you'll have to pay the full price for your smart phone, which typically is a lot more than the price with a contract.

A Google-powered Droid phone, for example, will run you $299.99 with a two-year contract from Verizon. The price jumps to $369.99 with a one-year contract. If you skip the contract, that Droid will cost $559.99, not including monthly service charges beginning at $39.99.

Although Verizon's $350 fee sets a high watermark for such penalties, it's in keeping with the industry practice of offering cool handsets at reduced prices in return for customers agreeing to a long-term contract.

AT&T, for example, will smack you with a $175 fee if you exit your iPhone contract before two years are up. (The fee decreases by $5 for every month you have the phone.)

"This isn't about subsidies," said Joel Kelsey, telecommunications policy analyst for Consumers Union. "It's about punishing people for leaving the provider."

He noted that Verizon will lower its early-termination fee by $10 a month for each month you're with the company. But even if you stay for the full two years, your early termination fee still would be $110. "If this was really a subsidy, that fee should be zero by the end of the contract," Kelsey said. "This shows that the early termination fees they're charging don't actually reflect the cost of the discounted phone."

Moreover, he pointed out that even if you did buy your phone separately, you still would be paying the same amount for a Verizon service plan as someone with a subsidized phone.

"Shouldn't you be paying less, considering that they didn't subsidize your phone?" Kelsey asked.

The way things work now, consumers have a tough time knowing the actual cost of products and services they get from telecom companies. Phone manufacturers and service providers enter into deals, and the pricing gets muddled amid long-term contracts, fees and special discounts.

Consumer advocates say the first way to untangle this would be to end wireless exclusivity. All phones should work on all compatible networks -- particularly with all wireless companies building state-of-the-art networks to accommodate increasingly snazzy smart phones.

They also recommend an end to the practice of service providers "subsidizing" a product they don't make.