Verizon Doubles Early Termination Fees; No Other Carriers Follow Suit—Yet
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Verizon Wireless (NYSE: VZ) is getting quite a lot of bad press over its decision to double its early termination fees—or the amount of money you pay if you break your contract early.
In advance of the carrier’s latest smartphones going on sale today, it said it will increase its ETF’s from $175 to $350. Verizon insists the decision is justified because of the higher prices of today’s phones. And, although that may be true, the reason why it is getting a lot of attention is because the other top three top carriers are not following suit. Instead they are sticking with their lower fees—at least for now.
John Paczkowski from All Things D crunched the numbers and yes, the price hike on the surface is looking fair, especially if you are buying a pricier smartphone.
In most cases, carriers charge about $200 if you walk away earlier. That money is designed to recoup the cost of the handset they gave to you for free, or at a highly subsidized rate. Most carriers pro-rate the price, so that it declines as your contract wears on (typically about $10 a month or so).
Paczkowski looks at Motorola’s new Droid. At full price, it costs $559.99. With a two-year contract, Verizon sells the handset for $199.99, translating into a $359.99 subsidy (as long as Verizon actually purchased the Droids at that price). Therefore, an early-termination fee of $350 actually seems appropriate. ETFs will be lower for non-smartphone devices.
Will the other carriers follow? Both Sprint (NYSE: S) and T-Mobile confirmed to mocoNews that they don’t have plans to raise their $200 ETF. AT&T (NYSE: T) currently charges $175, and isn’t willing to speculate on whether that would change.
Perhaps it’s only a matter of time.
Posted In: Mobile, Companies, AT&T, Sprint, T-Mobile, Verizon
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