Verizon Defends Cancellation Fees - InformationWeek

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12/21/2009
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Verizon Defends Cancellation Fees

The largest U.S. carrier said doubling its early termination fee was necessary to reduce consumers' costs for sophisticated devices like the Storm 2 or Motorola Droid.

In a response to a probe by the Federal Communications Commission, Verizon Wireless said its raised early termination fees are necessary to get advanced devices like smartphones to consumers at reasonable prices.

The nation's largest mobile operator recently doubled its ETFs to $350 for devices like smartphones and 3G netbooks to help defray the costs of subsidies. For example, Verizon offers Research In Motion's BlackBerry Storm 2 for less than $200 with a new two-year contract, but that same device costs about $539 without a contract or ETF. The higher price is close to what each device costs Verizon, although it likely gets a volume discount.

"This pricing structure enables Verizon Wireless to offer wireless devices at a substantial discount from their full retail price," the carrier said in a written response to the FCC. "By reducing up-front costs to consumers, this pricing lowers the barriers to consumers to obtaining mobile broadband devices. It thus enables many more consumers, including those of more limited means, access to a range of exciting, state-of-the-art broadband services and capabilities."

Verizon also said the advanced devices require additional marketing and support costs, and the raised ETFs help cover these costs as well.

The raised fees drew the attention of four U.S. senators, who introduced legislation to curb cancellation fees. The senators asked the FCC to inquire about Verizon's fees because even with the prorated system that declines $10 per month, a user could potentially still owe up to $100 if they cancel near the end of their two-year deal.

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