Early-termination Fees Frustrate Cell Phone Users

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Almost half of cell-phone users feel hemmed in by the hefty fees they face for early termination of their contracts, according to a new survey from a consumer advocacy group. Forty-seven percent of cell-phone users said they’d consider dropping their plan if they didn’t have to pay an early-termination fee and 13% of that group said they’d switch as soon as possible, according to the survey of 775 cell-phone users, conducted by IPSOS North America for the U.S. Public Interest Research Group, a nonprofit consumer advocacy group.

Thirty-six percent of those surveyed said they’d thought about switching from one carrier to another but decided against it because of the fee. Another 10% said they’d paid an early-termination fee within the past three years. Early-termination fees “give consumers no choice in the marketplace,” said Ed Mierzwinski, consumer program director for the consumer group. “They trap consumers into their plan by saying ‘you can’t get out of it unless you pay us $150 to $240.’”

The fees average about $170, according to the study.

About 182 million phones and wireless devices were being used in the U.S. in 2004, according to the report. Contract terms generally run one to two years. Still, 51% of cell-phone users said they’d stick with their cell-phone provider even if their carrier eliminated the fee. The telephone survey has a margin of error of +/- 3.5 percentage points.

The report is the latest salvo in the war between consumer advocates and cell-phone companies over early-termination fees.

“The purpose of the report and the survey … is to make it clear to the FCC that the cell-phone industry is not competitive, that consumers are locked in a cell and they need greater protection,” Mierzwinski said. Cell-phone carriers argue that early-termination fees enable them to offer consumers lower monthly payments and cheaper phones. The fees “facilitate innovative and consumer-friendly pricing by allowing carriers to spread large handset subsidies and customer acquisition costs” over the life of a contract, according to the Cellular Telecommunications and Internet Association, a trade group, in a filing with the Federal Communications Commission.

The CTIA’s filing is in response to a growing number of lawsuits urging state courts to regulate the fees under states’ consumer-protection laws. The CTIA provided the text of the filing in response to a request for comment on this story.

The cell-phone carriers are asking the Federal Communications Commission to rule the fees are part of the rate companies charge consumers, rather than a separate fee — thus ensuring the FCC retains regulatory power over early-termination charges.

PIRG argues that early-termination fees are not part of the rate, but fall under the contract’s terms and conditions.

“A rate is something everybody pays for their service. This is a penalty that is designed to prevent you from shopping around,” Mierzwinski said.

When asked whether they agreed with the carriers’ claim that the fees are “just another rate charged for your use of cell phones” or “early-termination fees are penalties designed to discourage customers from switching,” 89% said the fees are a penalty, according to the survey.

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