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Verizon's new termination fee: $350

Company targets high-end 'advanced devices' for price hike.

By Karen Datko Nov 5, 2009 2:26PM

This post comes from Martin H. Bosworth at partner site ConsumerAffairs.com.

 

A memo leaked from Verizon Wireless confirms that the company is increasing its early contract cancellation fees to as high as $350 for what it calls its "advanced devices." That's double the current fee.

The memo, obtained by tech blog Boy Genius Report, states that an advanced device's cancellation fee will drop by $10 for each month completed under contract.

 

Though the company did not specify what it meant by "advanced devices," Boy Genius Report's Andrew Munchbach speculated it was targeted at high-end smart phones like the recently announced Droid, which runs the open-source Android platform and was built by Motorola. It's scheduled to debut Nov. 15.

 

"Anyone considering abandoning plans to buy the Droid after hearing this news, or are you just going to get yours before November 15th?" Munchbach asked. "Or will you actually be an honest person and actually honor the contract you sign?"

 

Wireless termination fees are not only a bane for customers, but a frequent target of criticism from Congress and policy advocates. The telecom industry claims the fees are necessary to recoup the costs of producing, selling and marketing the handsets.

 

Critics say the fees are designed to keep customers from shopping around for the best provider, by locking them into a contract with steep charges.

 

Free Press' Josh Levy said the move is "outrageous." "Early-termination fees are universal across the industry, and they're universally detested by consumers," Levy said.

 

"In fact, the average subsidy of a wireless handset in 2008 was $14.33," he said, "so a $175 fee is already more than 10 times the average subsidy. So what justification could there be for doubling the fee?"

 

Under threat of increased regulation from Congress, all four of the major wireless carriers in America voluntarily began prorating their termination fees over the life of an average two-year contract.

 

Numerous state courts have also ruled that the fees are unconscionable under state law, and carriers have settled many other lawsuits to avoid a ruling against them, preferring to lobby Washington for weaker federal laws that would usurp the state consumer protections.

 

Verizon Wireless recently announced that it would end its exclusivity agreement on its handsets, enabling smaller carriers to sell them six months after release.

 

The move was largely considered symbolic, as it applied only to carriers with 500,000 customers or less -- and 90% of the market is controlled by four carriers: AT&T, Sprint, T-Mobile, and Verizon Wireless.

 

Related reading at ConsumerAffairs.com:

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