Termination fees - philosophy?

[dk777]

I am not sure if this has been brought up before, and the following questions might sound unreasonable, but are not meant to be. I am not trying to be dense, I am just interested in viewpoints and some answers.

Here goes:

Has anyone in this forum or elsewhere discussed the reasoning for why cell phone companies can institute termination fees? Isn't a fee like this only paid by the consumer when they decide they'd like to get out of a contract early? Isn't this likely to occur only when the phone company provides poor service to the customer? If this consumer has a bad experience with a cell phone company, why does the customer have to then pay a penalty to leave what in their opinion is shoddy or poor service?

(Is the philosophy behind this that a cell phone contract is like a car lease?)

A couple of related questions:

1. Why have consumers allowed these termination fees to be charged against them?

2. What would happen to a company, business-wise, if it decided to eliminate termination fees? On one hand, everything else being equal (I know it isn't) it seems like customers would FLOCK to this company to get away from the spectre of a termination fee. On that same hand, such an action would communicate to the customer that this company was so sure of their services and products (= that few people would leave early), and that more people would come to take advantage of this company's services and policies.

On the other hand, perhaps the cell phone companies have to institute termination fees to ensure that their investment in the customer's individualized services are amortized over the length of the contract.

Any comments would be appreciated!

- DK

[pcardoza]

ALL carriers allow you a trial period (14 - 30 days) during which you can cencel with no ETF, if the service does not meet your expectations. This is a no questions asked policy.

If after the trial period, you do nothing, you accept the terms of the agreement, including the ETF policy.

If you are a new customer, you were likely given a very large discount on a handset to join up. Remember that even the cheapest GSM handsets actually retail for hundreds of dollars. If you were allowed to leave with no ETF, you could simply jump around and collect free handsets, while the carrier would be eating the cost of subsidising them and getting absolutely nothing out of it. So yeah, the ETF is in place tomensure they recoup the investment of taking you on as a customer.

[dk777]

Thanks for the response.

I suppose a two week trial period seems almost like a ruse. Can you really get a good idea in two weeks if the service is good? It takes me that long just to figure out the phone itself. In my case, I had wonderful service from a provider for over 4 years, then had a billing dispute that is still being resolved (which began in August 04). A long story follows, but I won't go into that here...

The cost of phones has always been something I have wondered about. It somewhat reminds me of those "rent to own" places: if you rent to own for two years, you own the appliance (after two years, you have paid $800 for a $300 TV, etc. )

Most people probably cannot afford several hundred dollars for a cell phone, so few people would use the service if they had to pay up front. Think about that for a minute: since there are no free lunches, doesn't that mean we (the consumers) ARE paying for those expensive phones over the life of our contract?

I don't know many people that would collect cell phones, but that is me. Maybe if the cell phone companies approached the cell phone service such that the user bought the phone, then had no termination fees, this would address my question...

But then, this becomes the prepaid phone option doesn't it?

Thanks again,

DK

[crood]

The ETF is the customer end of an agreement whereby the provider sells you a phone at a reduced price, whatever promotions are bing offered, and a set price for service. The customer agrees to a set length of service (1 or 2 years) in order to receive these benefits. Should the customer choose to terminate the service prior to the end of the agreed upon term, he/she agrees to pay the ETF. The customer is free to pay full price for the phone and not enter into a contract for service, but go month-month, instead. It's simply a way for the company to ensure they are paid when they've taken a loss on the phone price. Also, there are reasons other than poor service that a person may wish to change companies. For example, the other company may introduce a cheaper plan or cool new phone. A company you work for may have an exclusive deal with one carrier and only reimburse employees for service with that carrier.

[scottb]

Wirelessly posted (Samsung i600: Mozilla/4.0 (compatible; MSIE 6.0; Windows CE) Opera 7.60 [en])

What if you bring your own equipment? You are still required to sign a contract if you don't buy equipment and, I assume, still subject to an ETF. How would they explain that?

[WirelessBeachBum]

Equipment cost is just part of the investment in aquiring a new customer, (network infastructure, airtime, carrier intercollects, marketing cost, employee wages etc.)

These cost are not always clear to the consumer, or may not seem to have a direct cost to the consumer, but wireless service is expensive to provide. You would be surprised at how little money is actually made on the "average" customer.

[agentHibby]

Wirelessly posted (Samsung i600: Mozilla/4.0 (compatible; MSIE 6.0; Windows CE) Opera 7.60 [en])

What if you bring your own equipment? You are still required to sign a contract if you don't buy equipment and, I assume, still subject to an ETF. How would they explain that?

With Verizon if you brought your own phone or paid full retail and got a plan with no promotions you would not be on a contract.
Would it be worth it now that pre-pay is in??
I guess if you need 3300 minutes it would be worth it.
3300 local digital = $149.99
3300 prepay = $330.00 or more

[scottb]

Wirelessly posted (Samsung i600: Mozilla/4.0 (compatible; MSIE 6.0; Windows CE) Opera 7.60 [en])

Wirelessly posted (Samsung i600: Mozilla/4.0 (compatible; MSIE 6.0; Windows CE) Opera 7.60 [en])

What if you bring your own equipment? You are still required to sign a contract if you don't buy equipment and, I assume, still subject to an ETF. How would they explain that?

With Verizon if you brought your own phone or paid full retail and got a plan with no promotions you would not be on a contract.
Would it be worth it now that pre-pay is in??
I guess if you need 3300 minutes it would be worth it.
3300 local digital = $149.99
3300 prepay = $330.00 or more

Verizon would not sell me service unless I signed a contract. They told me they could not give me service on a month to month basis.

[Tony E!]

Agent, i see what you meant, if you don't want to be under a contract you can always use pre-pay calling cards but can get very expensive if you compare the same amount of minutes used with a calling plan that's under a contract, not to mention all the features that you don't get with prepay services.......

[agentHibby]

Wirelessly posted (Samsung i600: Mozilla/4.0 (compatible; MSIE 6.0; Windows CE) Opera 7.60 [en])
Verizon would not sell me service unless I signed a contract. They told me they could not give me service on a month to month basis.

Most people at Verizon don't know that I have found out. Unless you need lots of minutes and can dish out $100 or more then it is a good option if you don't want to be on a contract and $10 1000 M2M and/or extra $10 1000 N&W can be added and still no contract since they are not part of a promotion.
If you need airtime with only 100-200 minutes then prepay is a better way to go with VZW.

[agentHibby]

Agent, i see what you meant, if you don't want to be under a contract you can always use pre-pay calling cards but can get very expensive if you compare the same amount of minutes used with a calling plan that's under a contract, not to mention all the features that you don't get with prepay services.......

Almost right Tony E
Right on about about pre-pay, but what I meant was Verizon's no promotion plans like you would have got in my hometown when Verizon was there. You got no M2M or N&W just your anytime minutes, when you have a plan that is $100 or hihger then it is cheaper to go that route than prepay.
If you brought a phone with you in my hometown to get service with Verizon you were on a month to month contract. You could add for $10 1000 N&W and/or extra $10 1000 M2M.
If you wanted the promotion of 2000 N&W you had to be serviced in Des Moines.

[Tony E!]

Almost right Tony E
Right on about about pre-pay, but what I meant was Verizon's no promotion plans like you would have got in my hometown when Verizon was there. You got no M2M or N&W just your anytime minutes, when you have a plan that is $100 or hihger then it is cheaper to go that route than prepay.
If you brought a phone with you in my hometown to get service with Verizon you were on a month to month contract. You could add for $10 1000 N&W and/or extra $10 1000 M2M.
If you wanted the promotion of 2000 N&W you had to be serviced in Des Moines.

Ok got ya now.
Agent doesn't Verizon also have the option of not going with a contract but your calling plan is $10 extra? Sprint has this option.....

[scottb]

Wirelessly posted (Samsung i600: Mozilla/4.0 (compatible; MSIE 6.0; Windows CE) Opera 7.60 [en])

It sounds like they have options many people don't know about-including their employees! In the end, it's really not a big deal for me to be under cotract since I don't plan on changing providers any time soon. Prepay does seem expensive to me, besides, I have the unlimited PDA data plan which I don't think is available for prepay subscribers.

[agentHibby]

Did not think it was a bigdeal for you scottb.
just wanted to clarify what said.

Verizon does not have an option like Sprint to pay $10 extra to go month to month. Only buy a no promotion plan and $10 extra for N&W. Or finish up a contract

[MOTOhooligan]

I read a statistic somewhere (of course I can't remember where) that said wireless providers do not start seeing a profit from the average customer until about 18 months into their service. Between the subsidized cost of the phone, the salary wages to the activating salesperson, the comission, the literature received with new service, etc, etc, etc. The ETF is there to make sure the company does not lose money if the customer decides to cancel early... even though with some customers they probably do not break even.

[Fire14]

I read a statistic somewhere (of course I can't remember where) that said wireless providers do not start seeing a profit from the average customer until about 18 months into their service. Between the subsidized cost of the phone, the salary wages to the activating salesperson, the comission, the literature received with new service, etc, etc, etc. The ETF is there to make sure the company does not lose money if the customer decides to cancel early... even though with some customers they probably do not break even.

Gee I wonder what they will do in the future to see that time period come down to a year or less? Full retail for phones maybe? Of course i am sure they will want a whole lot more customers to get to that point.
The 1 good thing is Cingular is looking to retain customers more so since they said it was cheaper to retain them vs getting new ones.

[jones]

Carriers always have billing errors and you can challenge it.

If you already have an ACTIVATION FEE,
WHY Do you still have a Contract & Termination Fee?

What I mean is if you pay Activation Fee you should not have
a Termination Fee, or if there's no Activation Fee then there should
be a Termination Fee.
There should only be One Fee, not Two.

[Teethlady]

I heard on the radio that people who buy their cell phones at the kiosks in the big warehouses (Sam's, Costco, etc), after cancelling their plans with the provider and paying a cancellation fee of $150 or more, they get hit with another cancellation fee from the kiosk itself ranging in the $150 to $200 amount. Now THAT is a ripoff!

[Chudman]

I heard on the radio that people who buy their cell phones at the kiosks in the big warehouses (Sam's, Costco, etc), after cancelling their plans with the provider and paying a cancellation fee of $150 or more, they get hit with another cancellation fee from the kiosk itself ranging in the $150 to $200 amount. Now THAT is a ripoff!

That's why it pays to read the contract!!

CM