Verizon Wireless responds to FCC query, says termination fees tied to administration costs

Verizon Wireless defended its recent decision to double penalties for smart-phone customers who leave their contracts early (known as early termination fee or ETF), telling the Federal Communications Commission that it needed to do so to keep up with the rising costs of mobile devices that it is subsidizes for its users -- and the "costs and risks of providing service, which include advertising, commission, store costs, and network costs." Verizon said consumers are protected from the fees being too onerous: They are given 30 days to leave a contract without penalty; a user can buy a phone at full price without signing a long-term contract; and termination fees are prorated throughout the length of the contract. The Verizon letter reveals nothing but tries to pass itself off as a manifesto that anything it does is good for consumers.

Verizon writes: "The new ETF structure for Advanced Devices begins at $350 and declines by $10 per month for a two-year contract. Thus, a customer terminating in the last month of a two- year contract term could be assessed an ETF of $120. This ETF structure is fair and reasonable for several reasons. First, taking customers who terminate their contracts before the end of the contract term as a whole, Verizon Wireless still incurs a financial loss from early terminations, even with the $350 ETF. Second, prorating the ETF to zero in the last month would mean that, to recoup the same amount of the losses caused by early terminations as a whole, Verizon Wireless would have to set the starting amount for the ETF higher than $350."

The letter drew immediate criticism from consumer groups that said Verizon is unfairly charging consumers for costs unassociated with the phones. Such policies, they say, deter users from switching carriers even when they move to areas without service and can add up to hundreds of dollars of penalties for households that want to terminate service even close to the end of their contracts.