Broadband Internet providers are increasingly imposing early termination fees to keep their customers from straying away for a better deal somewhere else.
(Interested in what your broadband provider is doing on early termination penalties? Click here.)
Such fees have been a routine part wireless phone contracts for years, but only recently have they begun to show up in the broadband business. Typically, the fees are included in the fine print of long-term contracts of a year or more. Many of the low-priced promotional offers offered by the companies require customers to sign such long-term contracts.
A survey of the country's top broadband providers by www.hearusnow.org shows that many are now including early termination fees in their contracts, with penalties of $200 or higher for consumers. Are you as frustrated? Do something about it! Tell the FCC to stop broadband companies from charging early termination fees!
The widespread adoption of early termination fees in the broadband business should worry consumers, according to Jeannine Kenney, senior policy analyst at Consumers Union.
"Cancellation penalties are anti-competitive and deprive consumers of the benefits of competition in the markets where there is more than one broadband provider," says Kenney. "The justifications for them are suspect. Once enticing consumers to sign up, broadband providers should rely on quality and service to build customer loyalty, not onerous contract terms that hold consumers hostage."
Like wireless phone companies, broadband providers who have started including early termination fees and requiring long term contracts for promotional offers say they are justified. That's because consumers are usually getting a break on monthly rates, as well as free or discounted installation and equipment, such as modems.
"Basically, we are charging the (early termination) fee to regain what we have been giving the customer for free," says Bobbi Henson, director of Media Relations at Verizon. "Customers who sign a (high-speed Internet) contract with us get free installation and sometimes free equipment. They also save $2-$8 on their monthly rate."
Many broadband providers offer customers promotional discounts for buying a bundle of services such as high-speed Internet, phone and television. Some don't require customers to sign a long-term contract, but any discount typically goes away if a consumer cancels any one of the services in the bundle. In addition, the discounts typically are only in effect for a short period of time, some for only three months or so.
With providers offering so many different pricing plans and constantly changing promotional offers, it is difficult to determine if consumers actually save any money by selecting a service with an early termination fee. In some cases, the promotional discounts for long-term contracts with early termination fees are substantial. In other cases, there is virtually no difference in the rates.
For the companies, the fees help limit so-called "customer churn." In the wireless phone business, the combination of long term contracts and hefty early termination fees have been devastatingly effective in keeping customers from switching providers.
In our annual cell phone survey, Consumers Union found that nearly half of all cell phone customers who were considering switching carriers were deterred from doing so by the early termination penalty. That effectively means wireless phone companies don't have to offer superior networks or service to keep their customers loyal; the penalties do the work for them.
It should be noted that in the wireless phone business those penalties are much more ubiquitous and typically range from $150 to $240 per line. That means consumers who have a family plan with four numbers could be forced to pay upwards of $800 to get out of their contract.
Moving to a different area is another trouble spot for consumers when it comes to broadband providers and early termination fees. There is a good chance a broadband provider will not offer service in the community to which the consumer is moving. Some contracts stipulate that the early termination fee will be waived under such circumstances, but some don't make such allowances.
With providers saying they are charging early termination fees in most cases to make up for lost revenues over a set period of time from lower rates and free or discounted equipment, it would seem to make sense that the penalties would be pro-rated. Logically, any such losses incurred by the provider would be much lower for a customer who cancelled service after 10 or 11 months under an annual contract than a customer who cancelled after only a month or two.
None of the providers surveyed by www.hearusnow.org offered pro-rated early termination fees.
While the www.hearusnow.org survey was focused on the largest broadband providers, it appears that smaller providers are also adopting early termination fees – in some cases with even stiffer penalties and restrictions.
Kirkland, WA-based Clearwire, for example, imposes a early termination fees ranging from $180 to $220 for customers who drop its wireless broadband service before the end of their contracts. (You can view Clearwire's terms and conditions by clicking here.)
Interestingly, Clearwire does pro-rate its $220 early termination fee, knocking off $10 a month for each month the customer has service. The pro-rating would only reduce the fee by $110 at the most, however, meaning even a customer canceling in the final month of the contract would still owe Clearwire $110 in early termination fees.
What We Found
Here is a quick summary of what www.hearusnow.org has learned about the early termination fee policies of some the country's largest broadband providers. (This information was obtained through telephone interviews with the companies in late March 2007. While we have strived to make sure this information is as up-to-date and accurate as possible, promotional offers and pricing change frequently. It should be noted that we only surveyed the largest broadband providers and did not include hundreds of smaller broadband providers.)
AT&T (Including SBC and BellSouth)
* Charges a $99 early termination fee.
* The price of broadband service for month-to-month and annual contract customers is the same, but those who sign up for a one-year get one month of broadband service free.
* In many parts of the country customers can get a bundle of broadband, phone and television for $99 per month. The price goes up if any of the services are dropped within the term of the contract.
Cablevision
* No early termination fee.
* Customers can get a bundle of broadband, phone and television at a discount rate, but a contract is required. The price goes up if any of the services are dropped within the term of the contract.
Charter
* No early termination fee.
* Customers can get a bundle of broadband, phone and television at a discount rate, but a contract is required. The price goes up if any of the services are dropped within the term of the contract.
Comcast
* No early termination fee.
* In many parts of the country customers can get a bundle of broadband, phone and television for $99 per month. The price goes up if any of the services are dropped within the term of the contract.
Earthlink
* Charges a $149 early termination fee on a one-year contract for DSL service.
* Offers a bundle of high-speed DSL and phone service.
Qwest
* Charges a $200 early termination fee on a two-year contract for its high speed Internet service.
* Rates are the same for month-to-month and two year contracts, but customers who sign up for two-year contract will not be subject to future price increases for as long as keep broadband service with Qwest.
Time Warner Cable
* No early termination fee.
* Offers various bundles of broadband, phone and television services.
Verizon
* Charges early termination fee of $69 for its FiOS fiber optic broadband service and $79 for its DSL high-speed internet service. Service can be cancelled within first month without having to pay early termination fee.
* Rate for FiOS is about $5 less per month under annual contract. Rate for DSL is $2-$8 less per month under annual contract.
* Offers various bundles of broadband, phone and television services.