In the latest salvo in the war against wireless, media activist group Free Press last week proclaimed that “carriers are using…inflated early termination fees to lock millions into long-term contacts — and customers want out.” It then urged for the FCC to intervene to stop the practice.
This would be a mistake. There are plenty of reasons why termination fees make sense for consumers. More importantly, consumers who don’t like them have plenty of choices. In fact, only days after the folks at Free Press released their statement, Internet giant Google expanded those choices, announcing that it would offer a phone directly to consumers, which they can take to their provider of choice – with no need for a contract.
Consumer contracts, and associated cancellation fees, are fairly common in many markets, providing benefits to consumers. In wireless markets, binding contracts allow providers to offer – and consumers to buy — phones that are either free or at a heavily reduced in price. The downside is the fee for terminating a contract.
Arguing for regulation, Free Press cited a GAO report which found that “early termination fees stop 42 percent of consumers who want a new carrier from switching providers.” However, the whole point of such a fee is to create an incentive for customers to fulfill the contract which they had agreed to. This doesn’t mean consumers are getting a bad deal, in fact, according to that same report, 84% of users felt satisfied with their service.
It is understandable that many people don’t like the fees, but consumers are not without alternatives. Customers of all major service providers can buy an unsubsidized phone and connect it without a contract. In fact 20% of consumers already pick an option that does not require fees to cancel. And Google’s entry promises to create another attractive option.
Competition gives consumers a choice, sign a contract and get a discounted phone, or pay full price for a phone and be free of contractual limits. They get to decide. The market is working.