http://www.hearusnow.org/2010/01/now_hear_this_newsletter_janua_2.html
A few weeks back the Federal Communications Commission asked Verizon Wireless to explain its sudden move to double early termination penalties for its high end phones from $175 to $350, including its popular new Droid model.
Verizon has now sent a response to the FCC – well, sort of a response, actually.
The FCC raised questions concerning, among other things, Verizon’s rationale for doubling its early termination fee, the calculation behind the fee itself, and how the increase related to the cost differential between Verizon’s wholesale cost of advanced devices and the retail price charged to consumers. The letter also asked whether and when consumers are charged minimum accidental data usage fees – an all too common occurrence when customers hit a wrong button on their phones -- and how both data usage and early termination fees are disclosed to consumers.
Verizon’s response to these legitimate and highly-relevant questions were a jumbled combination of non-answers and misinformation written with a haughty tone one might expect the phone giant to take with a cranky customer rather than the federal agency in charge of regulating it.
Consumers Union and some other public interest groups sent a letter of their own to the FCC this week taking Verizon to task for its “response” to the agency’s questions.
Verizon appears to have ignored the FCC’s questions concerning the company’s rationale for doubling the early termination penalty and how the higher penalty relates to the cost paid by Verizon for advanced devices such as the Droid. For example, Verizon asserts – without offering any documentation – that the cost differential between its acquisition cost and the subsidized “retail” price it charges consumers for advanced devices is “more than twice as large” as the differential for basic devices.
While that may sound like a good thing, it almost certainly isn’t.
As the public interest groups point out in their letter, recent data indicate that the cost differential for typical, low-end wireless devices in less than $15.
“Even if the cost differential were ten times this amount, at $150, the original, non-doubled early termination fee of $175 would still generate a windfall for Verizon on customers who purchase a subsidized advanced device and then immediately terminate service,” the consumer groups write.
Perhaps more troubling, Verizon appears to have done some fancy footwork on the kinds of costs it tosses into the mix to justify early termination penalties. Besides the cost of the handset, Verizon says it has to bump up the fees in order to recover such ordinary business expenses as advertising, sales commissions, and customer service costs, as well as Verizon’s investment in its data network.
As the consumer groups point out, this begs the question of exactly what Verizon – and possibly other big wireless carriers – are doing with the billions of dollars they receive in service fees from their customers each year. Shouldn’t some of that money be going toward investment in the company’s data network, the way the expense of a new manufacturing plant or sales costs are built into the price of other products and services?
The FCC needs to go back to Verizon and tell it to actually answer the questions it originally asked. If Verizon tries to pull the same stunt again, the agency should launch a full-scale investigation.— including a detailed probe into what ordinary business expenses Verizon or other wireless carriers might be adding into their early termination penalties.
