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11/11/2009
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Lawmaker Eyes Verizon Termination Fees

A U.S. senator plans to introduce legislation that will stop carriers from raising cancellation fees.

In light of Verizon Wireless' plans to double its cancellation fees for smartphones, Sen. Amy Klobuchar, D-Minn., said Monday she planned to introduce legislation that will hinder mobile operators from unfairly raising their early-termination fees.

In a letter to Verizon Wireless CEO Lowell McAdam, Klobuchar said the move was "anti-consumer" because more customers are increasingly relying on their cell phones as their only line of communication. Having to pay $350 for cancelling a Verizon contract would be anti-competitive, Klobuchar said, and she also wrote to Federal Communications Commission Chairman Julius Genachowski, asking FCC to investigate the raised fees.

"Verizon Wireless' decision shows us once again that the wireless industry cannot police itself and will not, on its own, make its practices more competitive and consumer-friendly," Klobuchar wrote. "To that end, I urge the FCC to review the recent Verizon Wireless decision as well as the competitive and economic impact of ETFs on wireless consumers."

ETFs have long been a contentious issue in the wireless space, as consumer advocates say these fees hinder choice, but the mobile operators say they are necessary to recover the costs of subsidizing the handsets. Partially due to lawsuits and consumer pressure, the major carriers had been lowering these fees by prorating the cancellation costs depending on how far along the user is on the contract.

Verizon said it will be raising its ETFs to $350 because the cost of subsidizing smartphones is much higher than regular phones. For example, the BlackBerry Storm 2 can be purchased for $179 with a new two-year contract, but the handset costs about $539 without the carrier subsidy. The nation's largest wireless carrier is planning to take on AT&T for smartphone customers with high-profile devices like the Motorola Droid, and it is unclear how the higher ETFs will impact sales. Rivals AT&T, Sprint Nextel, and T-Mobile have cancellation fees that range from $175 to $200.


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