In a surprise announcement, AT&T said this week it will begin prorating the early termination penalties it slaps on customers who try to leave the company before their service contract is finished. Verizon, the country's other dominant cell phone company, began prorating its early termination penalties earlier this year.

Unfortunately, early termination penalties are just one of the anti-consumer practices employed by the U.S. cell phone industry to keep customers from shopping around for a better deal. Nearly all cell phones are locked by wireless carriers so they can't be used on another network. Useful features such as GPS capabilities or photo sharing technology are routinely disabled by the wireless companies, more often than not because they compete with similar services the cell phone providers want to sell to customers.

Neither Congress nor the FCC have shown much interest in reining in these anti-competitive business practices in recent years, but it finally appears that might be changing.

The Cell Phone Consumer Empowerment Act of 2007, introduced late last month by Senators Amy Klobuchar (D-MN) and Jay Rockefeller (D-WV), would help discourage some of the more egregious tricks used by cell phone companies to keep their customers from shopping around for a better deal.

The legislation would require all cell phone companies to prorate early termination fees and force carriers to provide consumers with better information about the service they are buying -- for example, accurate coverage maps and information regarding dropped calls.

In one of those coincidences that don't seem concidental at all, AT&T announced it would begin prorating its early termination penalties just a few hours before a Senate hearing on the pending legislation held Wednesday. (Consumers Union's Chris Murray testified in favor of the bill at the hearing. You can read his testimony here.)

Interestingly, AT&T did not offer any specifics on exactly how it will prorate the penalties.

In an ideal world, no cell phone company would impose early termination fees. Their sole purpose is to keep consumers from freely exercising their right to shop around for the best deal for them.

Prorating the fees is better than nothing, but the way Verizon has chosen to prorate its fees is still stacked against consumers. Verizon reduces its $175 early termination penalty by $5 for each month a customer is under contract. That means a customer who decides to cancel a two-year contract in its final month would still owe an early termination penalty of $60.

The Cell Phone Consumer Empowerment Act of 2007 would require all cell phone providers to truly prorate their early termination penalties. In the case of Verizon, a customer who cancels their two-year contract in the final month would owe only $7.29. Canceling halfway through a two year contract would mean a consumer would only have to pay half the penalty.

This is as it should be, and AT&T and Verizon should adopt a true prorating process like the one called for in the legislation on their own. Other cell phone companies should follow suit.

It would be more than simply a good political move. It would be honest and fair.

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