Cell-phone users feel trapped by high early-termination fees

47% in poll would consider dropping plan if they weren't bound by contracts

August 13, 2005|By KNIGHT RIDDER/TRIBUNE

SAN FRANCISCO - Almost half of cell-phone users feel hemmed in by the hefty fees they face for early termination of their contracts, according to a new survey from a consumer advocacy group.

The survey of 1,000 households found that 47 percent said they'd consider dropping their plan if they didn't have to pay an early-termination fee, and 13 percent of that group said they'd switch as soon as possible.

Ipsos North America conducted the poll for the U.S. Public Interest Research Group, a nonprofit consumer advocacy group, which included the survey in a report on the cell-phone industry. The telephone survey was conducted July 12 through July 14 and had a margin of error of plus or minus 3.5 percentage points.

Thirty-six percent of those surveyed said they'd thought about switching from one carrier to another but decided against it because of the fee. An additional 10 percent said they'd paid an early-termination fee within the past three years.

Early-termination fees "give consumers no choice in the marketplace," said Edmund Mierzwinski, consumer program director for the consumer group. "They trap consumers into their plan by saying, `You can't get out of it unless you pay us $150 to $240.'"

The fees averaged about $170, according to the study.

About 182 million phones and wireless devices were used in the United States in 2004, according to the cell-phone report. Contract terms generally run one or two years.

Still, 51 percent of cell-phone users said they'd stick with their provider even if their carrier eliminated the fee. The report is the latest salvo in the war between consumer advocates and cell-phone companies over early-termination fees.

"The purpose of the report and the survey ... is to make it clear to the FCC that the cell-phone industry is not competitive, that consumers are locked in a cell and they need greater protection," Mierzwinski said.

Cell-phone carriers argue that early-termination fees enable them to offer consumers lower monthly payments and cheaper phones.

The fees "facilitate innovative and consumer-friendly pricing by allowing carriers to spread large handset subsidies and customer acquisition costs" over the life of a contract, said the Cellular Telecommunications and Internet Association, a trade group, in a filing with the Federal Communications Commission.

The association's filing is in response to a growing number of lawsuits urging state courts to regulate the fees under state consumer-protection laws. The trade association provided the text of the filing in response to a request for comment on the cell-phone report.

The cell-phone carriers are asking the Federal Communications Commission to rule the fees are part of the rate companies charge consumers, rather than a separate fee - thus ensuring the FCC retains regulatory power over early-termination charges.

The U.S. Public Interest Research Group argues that early-termination fees are not part of the rate, but fall under the contract's terms and conditions.

"A rate is something everybody pays for their service. This is a penalty that is designed to prevent you from shopping around," Mierzwinski said.

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