The FCC has just sent letters inquiring about Early Termination Fees to each of the major wireless carriers in the United States — AT&T (NYSE:T), Sprint Nextel (NYSE:S), T-Mobile, and Verizon Wireless (NYSE:VZ) — and one outlier: Google (NASDAQ:GOOG). We’ve embedded all five letters below. The inquiry is the first action taken by the FCC’s recently formed Consumer Task Force. The inquiry comes only a few weeks after the FCC questioned Verizon about its high $350 ETF for “advanced devices” and deemed Verizon’s response to be “unsatisfying, and, in some cases, troubling”.
The text of the letters to each of the carriers is very similar, explaining that the FCC is looking to ensure that customers are being fully and transparently informed about any ETFs they may face. But the letter to Google includes some interesting passages explaining why the company is being questioned alongside the carriers. With the recent release of the Nexus One, Google has been criticized for charging its own fee in addition to the ETF imposed by T-Mobile):
Google’s introduction of the Nexus One handset presents consumers with new options for obtaining mobile wireless service, from a new entrant in the wireless phone market. The Commission welcomes new choices for consumers and new entry into the market because it recognizes that robust competition benefits consumers by accommodating the wide variety of consumers’ communications needs.
At the same time, where new options may subject consumers to substantial ETFs, potentially from more than one entity, the Commission has a special interest in ensuring that consumers have a clear and complete understanding of the rates, terms, and conditions on which the communications services are being offered and the rationale for those rates, terms, and conditions. The combination of ETFs from Google and T-Mobile for the Nexus One is also unique among the four major national carriers. Consumers have been surprised by this policy and by its financial impact. Please let us know your
rationale(s) for these combined fees, and whether you have coordinated or will coordinate on these fees and on the disclosure of their combined effect.
While the explanations for why each company is being questioned vary, it appears that the questions being asked are identical. Here are the twelve questions each company is being asked:
1.Do your ETFs apply to all service plans or only some? If so, which ones?
2. What is the amount of the ETF for each service plan where ETFs apply? If there are different ETFs for different plans, what is the rationale for those differences?
3. How much of a discount on handset purchase is given in return for a consumer accepting an ETF? Does the amount of the discount differ by device, and if so, how?
4. Does the ETF itself vary by device (e.g., higher ETFs for advanced devices)? If higher ETFs apply to a certain class of devices, exactly how is that class defined?
5. Is it possible for consumers to buy a handset from you at full price to avoid an ETF? If this is possible, can consumers buy unsubsidized handsets online, as well as at brick-and-mortar stores?
6. Do monthly service rates and terms differ: (1) between customers who assume a term commitment and accept an ETF, and those who don’t, and (2) between customers who purchase an unsubsidized device (either from your company or a third party), and those who purchase a subsidized device? If so, how do they differ, and what is the rationale for the difference? Can customers easily determine the impacts of their decisions and their rates and terms?
7. Are ETFs prorated so that the customer’s liability decreases over time? If so, what is the exact schedule by which they are prorated?
8.If a customer renews his or her contract without buying a new handset, does his or her monthly service fee change in any way?
9. How long is the trial period during which consumers can cancel their service without an ETF penalty? If they cancel, can they return the handset? If they return it, will they receive a full refund, no refund, or a refund minus a restocking and/or refurbishing fee?
10. When do consumers receive their first bill under your service plans? How does the trial period relate, if at all, to receipt of the first bill?
11. Are there consumer fees or charges in addition to ETFs if consumers buy handsets and/or service plans from online phone dealers, such as Amazon, LetsTalk, and Simplexity (d/b/a Wirefly), or from a service provider, if a customer does not complete the contract term? If so, what are they, and what are their levels, terms, and conditions? Do the fees or charges affect the ETFs and if so, how?
12. Press reports and public statements from wireless companies have attributed ETFs to several different factors. What is the rationale for your ETF(s), and how specifically do the structure and level of those ETF(s) relate to that rationale?