I’ve been asked to talk about early termination fees (ETFs) and my thoughts on them. To preface this post, I am not a lawyer, and do not recommend that anyone use my opinion as legal authority. Please consult a lawyer for an expert opinion on the matter. With that out of the way, let’s discuss.

The recent headlines have been filled with information about wireless carriers’ ETFs including ones about the recent court case where the judge ruled Sprint’s ETF in California illegal. While most consumers are happy about this ruling, I think it’s too early to celebrate. Whether this goes down as a landmark case or just a hiccup for Sprint when it gets overturned in appeal, it’s important we break down why the current ETF rules aren’t logical and how they can be fixed.

From a macro level, ETFs seem very logical. As a cell phone user, I am entering into a contract with a wireless carrier. I agree to accept a certain cost and quality of service in return for my promise to use (and pay for) the service for the life of the contract (usually 2 years). When analyzing the situation, however, we run into some very big problems:

1. The cost does not stay the same. As stated in previous posts, wireless carriers change their rates all the time. Therefore, the contract is not guaranteeing me a fixed cost over the life of the contract.
2. I can receive wireless service without signing a contract. The main reason most people sign a contract is to get a subsidized price on a phone. The argument for the ETF from the carrier is to recoup the losses they had on the subsidized price of the phone. The ETF, though, is not a different price for different phones. If I buy a $200 phone that should have been $400, the carrier is out $200. If I buy a $50 phone that should have been $100, the carrier is out $50. The ETF for both phones would be the same. Something is wrong with that line of logic.
3. Having a contract that clearly states that the contract can change defeats the purpose of having a contract all together. As I said, I’m not a lawyer, but this just seems obvious to me.

On the other hand, let’s look at it from a wireless carrier’s point of view. Verizon, AT&T and others have spent billions of dollars in investment into the telecom networks that run our nation’s wireless service. They shouldn’t be banned from locking in customers to contracts that have penalties if those customers jump ship. It is that expected steady stream of revenue that allows these carriers to continually invest in the network. So how could telecom keep customers locked in without pissing them off? Here are a few suggestions:

Locked Rates

A truly locked rate regarding all fees that the carrier sets would stop people like me from jumping ship when small rates change.

One Year Contracts

Customers who have less than 6 months on a contract and want to leave are more likely to just wait out the contract rather than go through the hassle of fighting the ETF. In today’s modern age of rapid advancing technologies, you can’t tie people down for two years. It’s just too long. One year would be perfect. 18 months would be less perfect but might work as well.

ETFs that Reflect Actual Losses

The ETF should be directly related to the loss generated by the carrier for that contract. So, if the only difference between a contract and no-contract account is $100 off a new phone, then the ETF should be $100 and should be pro-rated to decrease over the life of the contract.

Educated Customer Service

I cannot push this point enough. Customer service representatives should be knowledgeable and well versed in the carrier’s contract. If a user chooses to leave and legally can, reps need to let them leave without a fight. Additional offers are nice and greatly appreciated, but if a user declines and chooses to leave within their rights per the contract, then let them go.

or….

Eliminate ETFs and Provide the Best Service

This is the best option but one I expect few carriers to take. Provide the best service and you’ll get the most customers. The market will go towards the service that works for them best.

Those are my suggestions. If anyone has any more, please provide them in the comments. I’ll update this article with the ones that seem to be most popular.

Also, for a good laugh, listen to this 27 minute call with Verizon about basic math found on Verizon Math. Extremely funny.