Will Google have to justify $350 ETF to FCC?

When consumer outrage abounds, it’s best to lay low for a bit if you disagree. I’m glad, then, that Michelle covered the Verizon raising ETFs story so well. Consumers, individually and in groups, bemoaned the ETF increase on smartphones, claiming that it represented just another way wireless companies extort money from hard working citizens. While I think Verizon could claim solid justification for the increase, they did themselves no favors by claiming “advertising costs, commissions for sales personnel, and store costs” as part the reason for assessing a larger ETF. Now another company, Google, will impose a hefty early termination fee on customers who purchase a subsidized Nexus One handset. Will this also come before the FCC?

For starters, as I hinted in the above paragraph, carriers can justify a $350 ETF if they keep their stories straight. Take Verizon for example. If you walk into a store and buy a BlackBerry Tour, it will cost you $200. If you buy it online, it will cost just $100. The month to month price on the device is $490. If you cancel your plan a month or so later, you’ll have to pay somewhere around a $345 early termination fee because of the proration (a topic for another day). Assuming you get the $100 mail-in rebate from the store, you’d have paid $445 for the device, or $45 less than the device would have cost without service. But, since you presumably paid your bill in that month or so, Verizon would have recouped some or all of that $45. The transaction would be relatively even.

(This doesn’t even go into Verizon’s buy one, get one offer, which spurred the rate increase. Customers could buy and activate two smartphones, cancel one, pay the $150 fee and sell the unused one on eBay for, say, $350 or $400. That covers almost all of the up front costs, and leaves Verizon out plenty.)

With the Nexus One, the fee becomes astronomical. Say you want to purchase the phone for T-Mobile. It costs $180 subsidized, presumably by the carrier, not Google. Then, if a customer cancels after the 14-day trial period but before 120 days, he not only has to pay the $200 T-Mobile ETF, but also a $350 ETF to Google. The up-front cost plus the fees means customers will pay $730 for the phone. The unsubsidized price is $530. This seems outrageous.

As you can see, though, it looks like T-Mobile’s subsidy is the difference here, which makes me wonder whether it’s actually T-Mobile subsidizing the phone rather than Google. If Google is behind the subsidy, then T-Mobile should not be allowed to charge a $200 ETF. If T-Mobile is behind the subsidy, Google should not be allowed to step in and make the customer pay full price. It only works one way, though for right now it appears that the carrier and manufacturer want to have it work both ways.

Most customers won’t cancel their Nexus One contract between 14 and 120 days, but that doesn’t justify the behavior of T-Mobile and Google on this one. If the subsidizing party wants to recoup the cash it laid out, that’s fine. Customers sign contracts for a reason, primarily to receive the subsidy. If they don’t live up to their end, the company should have the ability to recoup. But a non-subsidizing company should have no rights to recoup what are, in the end, nonexistent funds. One party has to give on this one.

Filed under : Early Termination Fees