AT&T: "Early Termination Fees A Great Deal For Consumers"

[Ed Hansberry]

<div class='os_post_top_link'><a href='http://arstechnica.com/news.ars/post/20080613-att-termination-fees-ultimately-a-great-deal-for-consumers.html' target='_blank'>http://arstechnica.com/news.ars/pos...-consumers.html</a><br /><br /></div><p><em>&quot;Those early termination fees (ETFs) that consumers pay for switching cell phones in mid-contract are a great deal, an attorney for AT&amp;T told the Federal Communications Commission yesterday. &quot;ETF-backed term contracts give customers the ability to lower their monthly charges and upfront handset costs in exchange for their promise to pay monthly charges for the life of the contract or alternatively to pay the ETF in lieu of the remaining charges,&quot; Seamus C. Duffy explained to the FCC. Not only that, but &quot;the overwhelming popularity of these rate plans has fueled the tremendous increase in wireless penetration, usage, and technical innovation documented by the [FCC's] annual reports on wireless competition.&quot; </em></p><p>Right. It is such a great deal for consumers, I am waiting for the online petition so my utility companies, cable bill and&nbsp;NNTP service fee&nbsp;implement an ETF. And I am sure those of you paying monthly fees for acces to subscription sites, music sites and many more are also excited about ETFs everywhere, because according to the AT&amp;T attorney, it is a good thing for us. No, not just a good thing, but a &quot;Great Deal!&quot; In fact, I think Jason may be working on an ETF program for Thoughts Media subscribers, because he surely wouldn't want to cheat you out of a great deal.<br /><br /></p>

[Chris Gohlke]

I don't think the problem is the ETF so much as the way it is handled. They need to be more upfront with the customer and give you options.

1. Pay full price for the phone, get a monthly contract with no ETF.

or

2. Pay a discounted price for the phone, have a contract with an ETF that goes down each month by (discount/#months on contract)

[JKingGrim]

I don't think the problem is the ETF so much as the way it is handled. They need to be more upfront with the customer and give you options.

1. Pay full price for the phone, get a monthly contract with no ETF.

or

2. Pay a discounted price for the phone, have a contract with an ETF that goes down each month by (discount/#months on contract)Right on the nail IMO. The contract itself is not unfair. You are getting a $150 discount on a phone in return for a commitment of two years. The problem is that there is no option to get service with out a contract.

[Rocco Augusto]

Right on the nail IMO. The contract itself is not unfair. You are getting a $150 discount on a phone in return for a commitment of two years. The problem is that there is no option to get service with out a contract.

With AT&T they have their 'contract-like' goPhone plans that include rollover, nights and weekend minutes and even unlimited mobile-to-mobile and the option to add on features like unlimited SMS and MediaNet data access. I think T-Mobile has something similar. The only downside is you pay a little more but at least you don't have to deal with the contracts. :)

[JKingGrim]

With AT&T they have their 'contract-like' goPhone plans that include rollover, nights and weekend minutes and even unlimited mobile-to-mobile and the option to add on features like unlimited SMS and MediaNet data access. I think T-Mobile has something similar. The only downside is you pay a little more but at least you don't have to deal with the contracts. :)A month ago I finally made the switch to GSM. I walked into the att store with my unlocked tilt in pocket. The plan you are referring to is called pick your plan. It is like a rate plan, but no contract and you pay before the billing period instead of after. The plans give you a lot less minutes for the same price. I asked a rep if I can get a regular rate plan with no contract and he said no. I promptly went across the street to t-mobile and signed up. With Tmo you can get flexpay. You pay the exact same rate as a post paid plan, just at the beginning of the cycle as opposed to after. Same features and everything. Wakeup AT&T.

Here is my dilemma. I am working in Michigan for the summer, but I go to school in Blacksburg VA. At my apartment in VA, coverage by most carriers is spotty. At my apartment here in MI T-mo coverage really stinks and it is very annoying. AT&T has 850mhz coverage here, however. Their coverage map show very good signal. I would love to sign up with AT&T for better coverage (maybe even despite the fact that I would pay $40 more per month for the same basic features). But what if when I get back to Blacksburg I get no signal with AT&T and good coverage with T-mo? I am past the 30 cancellation period. Contracts suck. I should not be forced to commit for two years just to get a service. [/rant]

[deanhatescoffee]

Anyone can get a plan with AT&T without a contract. Every phone (except the iPhone) has a "no commitment" price. With this, you buy the phone outright. You don't get the extra discounts because you're not signing a contract, but you can definitely get service without a contract. However, because of the discounts, two-year contracts can be a good thing (which I'm assuming is where the AT&T lawyer was intending to go with his line of reasoning regarding the ETF).

@JKingGrim: The rep you talked to was absolutely wrong about you needing to sign a contract if you have your own equipment. As far as the signal goes, if you can get a signal with T-Mo then you can get at least the same signal with AT&T, if not better due to their use of multiple bands.

1. Pay full price for the phone, get a monthly contract with no ETF.

or

2. Pay a discounted price for the phone, have a contract with an ETF that goes down each month by (discount/#months on contract)

That's actually exactly how it works. AT&T even has prorated ETFs now.

[Stinger]

If I understand correctly, ETF isn't a terribly bad deal. You've signed up for a commitment and AT&T charge you if you want out of that commitment. If you want to break your commitment in the UK, you have to pay the remainder of the contract - a sum that is usually far in excess of $150.

That said, most carriers in the UK now offer SIM only deals. You don't get a new phone but in return you can cancel at any time and the SIM only plans are very attractive.

[JKingGrim]

Anyone can get a plan with AT&T without a contract. Every phone (except the iPhone) has a "no commitment" price. With this, you buy the phone outright. You don't get the extra discounts because you're not signing a contract, but you can definitely get service without a contract. However, because of the discounts, two-year contracts can be a good thing (which I'm assuming is where the AT&T lawyer was intending to go with his line of reasoning regarding the ETF).

@JKingGrim: The rep you talked to was absolutely wrong about you needing to sign a contract if you have your own equipment. As far as the signal goes, if you can get a signal with T-Mo then you can get at least the same signal with AT&T, if not better due to their use of multiple bands.



That's actually exactly how it works. AT&T even has prorated ETFs now.I would certainly love to believe you but according to AT&T this is not so. Whether or not you want a subsidized phone, you must sign a two year contract. The rep told me they dont even do 1 year contracts anymore. The only way to get service without a contract is "pick your plan" or "pay as go" prepaid plans, which as I explained above are even bigger rip-offs than the regular rate plans. The unsubsidized cost for the phones are for those who purchase without service or those who are upgrading their handsets, and they are not yet eligible for a discount by re-upping the contract. If I can get a regular post paid plan with no commitment please do tell how.

[virain]

I would certainly love to believe you but according to AT&T this is not so. Whether or not you want a subsidized phone, you must sign a two year contract. The rep told me they dont even do 1 year contracts anymore. The only way to get service without a contract is "pick your plan" or "pay as go" prepaid plans, which as I explained above are even bigger rip-offs than the regular rate plans. The unsubsidized cost for the phones are for those who purchase without service or those who are upgrading their handsets, and they are not yet eligible for a discount by re-upping the contract. If I can get a regular post paid plan with no commitment please do tell how.

All true! After reading post by deanhatescoffee I call AT&T and got the same answer as you

[Chris Gohlke]

Again, I think it is a disclosure issue.

In exchange for a 2 year contract, you are getting two benefits.

1) Subsidized hardware
2) Discount to monthly fee

So to be truly transparent, you'd need the following options

1) Pay full price for hardware and have a no contract monthly rate of x

2) Pay full price for hardware and have a contract rate of (x - rate discount for contract)

3) Get subsidized hardware and a contract rate of (x - rate discount for contract + add on to recoup the cost of the subsidized phone)

The early termination fee should be some combination of the present value of the contract discount that you should not have gotten since you did not fulfill the 2 year contract and the costs of the subsidized phone that have not been recouped.

[ptyork]

@JKingGrim: The rep you talked to was absolutely wrong about you needing to sign a contract if you have your own equipment. As far as the signal goes, if you can get a signal with T-Mo then you can get at least the same signal with AT&T, if not better due to their use of multiple bands.

Uhh, that's unfortunately very wrong. TMo and AT&T usually use different towers (only sometimes do they lease the same ones). Thus, you cannot be guaranteed a signal on AT&T in the same places that you get signal from TMo. Case in point--where I am right now. My office & my house. I'm with AT&T because they got a super signal at my house and we use the phone as a replacement for our landlines. Unfortunately they get a shoddy signal in my office (usually none unless I press my ear to my window). TMo is exactly the opposite (though the coverage at the house is better than AT&T's at the office).

The original point is a very valid one. If I'd known about the problems at the office I'd probably not have gone with AT&T, but I didn't have the opportunity to test it out there before my 30 day lock-in. I've begged and pleaded, but I'm stuck for another year or I'm out $175.

[Ed Hansberry]

Again, I think it is a disclosure issue. In exchange for a 2 year contract, you are getting two benefits.

***long quote trimmed by mod JD***

How about just get a montly contract and forget the phone. I'd rather have a phone untouched by carrier crapware.

[Fritzly]

Again, I think it is a disclosure issue.

In exchange for a 2 year contract, you are getting two benefits.

1) Subsidized hardware
2) Discount to monthly fee

So to be truly transparent, you'd need the following options

1) Pay full price for hardware and have a no contract monthly rate of x

2) Pay full price for hardware and have a contract rate of (x - rate discount for contract)

3) Get subsidized hardware and a contract rate of (x - rate discount for contract + add on to recoup the cost of the subsidized phone)

The early termination fee should be some combination of the present value of the contract discount that you should not have gotten since you did not fulfill the 2 year contract and the costs of the subsidized phone that have not been recouped.

1) shoud read Subsidized and crippled hardware and Software with some missed apps. Go abroad for two weeks and the roaming charges will wiped out the "supposed" savings of the subsidized hardware.

[Rocco Augusto]

I would certainly love to believe you but according to AT&T this is not so. Whether or not you want a subsidized phone, you must sign a two year contract. The rep told me they dont even do 1 year contracts anymore.

The rep you spoke too was flat out lying to you. AT&T does offer you the option of signing up for service without a contract and at the time I was working with AT&T you would have to pay several hundred dollars up front to get this option. It seems like a rip off to most people, but there were a lot of people that would rather pay a few hundred bucks up front instead of being stuck in a contact for the next 24 months.

The same thing goes for one year contracts. If you choose to sign up for a one year contract, you pay $50-$100 more for the handset to make up for the subsidized price. To me it sounds like you encountered a sales representative that openly lied to you so they could get paid more. During my time at AT&T sales reps were paid nothing for signing a customer up on a contract free post paid plan (unless the customer added features to their account) and you would get paid a lot less for signing a customer up on a one year contract as well. This is why I'm a firm believer that the current commission scale that all cellular phone companies pay their employees needs to go.

More often than not I purposely go to cell phone stores just to see what lie I'll get spoon-fed just so the sales rep can get paid. More often than not they spoon-feed you with a shovel but every now and then you get a sales rep that is actually honest and does their job.

Uhh, that's unfortunately very wrong. TMo and AT&T usually use different towers (only sometimes do they lease the same ones).

True but a few years back T-Mobile struck a nationwide tower leasing deal with AT&T. This is why T-Mobiles coverage map went from looking like severely picked at left overs from Christmas dinner to something that customers might actually want to use. T-Mobile still doesn't have as good as coverage as AT&T, but it is a LOT better than it was a few years ago. The only downside is when T-Mobile launches its new 3G network, it will be incompatible with the frequencies used by other 3G networks throughout the planet. What this means for consumers is if you decide to take your unlocked 3G phone off of AT&T's network and move it to T-Mobile you would not be able to take advantage of their 3G network at all.

1) shoud read Subsidized and crippled hardware and Software with some missed apps. Go abroad for two weeks and the roaming charges will wiped out the "supposed" savings of the subsidized hardware.

Well in all fairness to the carriers, you're not signing up with them to get service in another country. ;)

[JKingGrim]

About the coverage issue, one reason AT&T tends to have better coverage is because many of their markets (most? nearly all?) have 850mhz coverage as opposed to 1900mhz. Lower frequencies penetrate buildings better and go longer distances. This is one reason why 700mhz spectrum was so valuable. T-mobile has does not have any 850mhz licenses. I am pretty sure the entire network is 1900mhz. AT&T has good 850mhz (as well a 3G) here so I know I would get a better signal. Back in Blacksburg however, AT&T has only 1900mhz coverage so I dont know what I will get.

The rep you spoke too was flat out lying to you. AT&T does offer you the option of signing up for service without a contract and at the time I was working with AT&T you would have to pay several hundred dollars up front to get this option. It seems like a rip off to most people, but there were a lot of people that would rather pay a few hundred bucks up front instead of being stuck in a contact for the next 24 months.When you say pay a couple hundred up front, you mean the cost of the handset right? There is no extra charge just because you are contract free? Since I already have a handset, I wouldn't have to pay anything extra right? What should I tell a rep who says they do not offer regular rate plans contract free?


Again, I think it is a disclosure issue.

In exchange for a 2 year contract, you are getting two benefits.

1) Subsidized hardware
2) Discount to monthly feeWith Flex pay on t-mobile, you can get regular rate plans at the same exact cost with the same features with no contract. Why shouldn't AT&T offer the same? As far as I am concerned the only benefit of the contract is the subsidized hardware. I don't think the monthly fee is also discounted. When your contract expires, you can continue to pay the same rate without extending the contract, can't you?

[Chris Gohlke]

How about just get a montly contract and forget the phone. I'd rather have a phone untouched by carrier crapware.

1) shoud read Subsidized and crippled hardware and Software with some missed apps.

Would be my option 1 if you brought your own, just you would not pay for hardware since you brought your own.

Crapware and crippled hardware both suck but are probably outside the scope of ETF.

[Rocco Augusto]

When you say pay a couple hundred up front, you mean the cost of the handset right? There is no extra charge just because you are contract free? Since I already have a handset, I wouldn't have to pay anything extra right? What should I tell a rep who says they do not offer regular rate plans contract free?

Nope, even if you had the handset you would still have to pay several hundred dollars up front. There is a reason for this though. All of the carriers actually lose money on their customers until around 9-13 months into their contracts. that is when they actually start turning a profit. Usually this lose is due to the subsidizing the handset but a small portion of it is because of all the extra features users get like free nights and weekend minutes and free mobile to mobile minutes.

The carriers happily give these features to users on contracts because they know they aren't going anywhere for a few years, and if they do they will be required to pay an early termination fee. This is why when you sign up for something like the 'GoPhone Pick Your Plan' you get a lot less for the same amount of money as there is no guarantee you will be a customer next month.

Same thing can be said for signing up without a contract. There is no guarantee that you'll be a customer next month or even tomorrow and who is to say before you cancel your phone you will not rack up 10,000 mobile to mobile minutes (I've seen customers bills who use way more mobile to mobile than that too!).

You paying a little more up front makes it so if you do leave their network they don't lose any money off of you. Also if I remember correctly (it has been several years since I signed up a device this way) I think they treat this payment as a deposit and you get it back after the normal would be contract length. You would have to have double check on that though as the details are a little fuzzy to me. :)

[JKingGrim]

Nope, even if you had the handset you would still have to pay several hundred dollars up front. There is a reason for this though. All of the carriers actually lose money on their customers until around 9-13 months into their contracts. that is when they actually start turning a profit. Usually this lose is due to the subsidizing the handset but a small portion of it is because of all the extra features users get like free nights and weekend minutes and free mobile to mobile minutes.

The carriers happily give these features to users on contracts because they know they aren't going anywhere for a few years, and if they do they will be required to pay an early termination fee. This is why when you sign up for something like the 'GoPhone Pick Your Plan' you get a lot less for the same amount of money as there is no guarantee you will be a customer next month.

Same thing can be said for signing up without a contract. There is no guarantee that you'll be a customer next month or even tomorrow and who is to say before you cancel your phone you will not rack up 10,000 mobile to mobile minutes (I've seen customers bills who use way more mobile to mobile than that too!).

You paying a little more up front makes it so if you do leave their network they don't lose any money off of you. Also if I remember correctly (it has been several years since I signed up a device this way) I think they treat this payment as a deposit and you get it back after the normal would be contract length. You would have to have double check on that though as the details are a little fuzzy to me. :)Thanks for the info. I didn't know carriers walked such a thin profit margin, but I guess it shouldn't surprise me. Most computer stores loose money with every laptop they sell. Thats why they want you to buy the $30 usb cable that probably costed a few cents to manufacture. Kinda similar situation here. Cheers. :)

[onlydarksets]

Right on the nail IMO. The contract itself is not unfair. You are getting a $150 discount on a phone in return for a commitment of two years. The problem is that there is no option to get service with out a contract.

But you basically do - just cancel the service and you're set. Or, pay full price and don't commit to a contract.

[makicr]

I think that a big part of their pushing the 2-year contracts is also to keep system stability. They are paying out money to build or rent more towers to provide more complete (and faster) coverage. They are making these investments and need to have a solid customer base to be able to finance them.

They also need to have a good understanding of what their customer base will look like in 1 year, etc, as they need to evaluate what additional enhancements are needed for the network. Just imagine how much slower the infrastructure updates would come if their customer base could just up and walk away if T-Mobile or Verizon had a real great offer that week.

[Ed Hansberry]

I think that a big part of their pushing the 2-year contracts is also to keep system stability. They are paying out money to build or rent more towers to provide more complete (and faster) coverage. They are making these investments and need to have a solid customer base to be able to finance them.

They also need to have a good understanding of what their customer base will look like in 1 year, etc, as they need to evaluate what additional enhancements are needed for the network. Just imagine how much slower the infrastructure updates would come if their customer base could just up and walk away if T-Mobile or Verizon had a real great offer that week.

Nah... that has nothing to do with it. There are really only 4 carriers in the US. Having a great product and great customer service is the way to be the winner here. Most people will pay more for better service and product. With only 4 carriers, people can only go to so many places. Many areas only have 2-3 viable carriers with the other not represented in their area.

If you wanted to prevent people carrier jumping for the deal of the week, just tack on a $20 nusance fee to close out a contract. That is something most would pay with no problem every few years, but someone shopping for a quick deal wouldn't want to pay.

[darkfire07]

I work for AT&T currently. If you bring your own unlocked GSM handest, you CAN get a regular rate plan without a contract. The only reason you'd pay anything up front would be if your credit class required a deposit.

Ed, the problem we face time and again is that the MAJORITY will gladly sign a contract to get a phone for free or a greatly reduced price. I know YOU prefer to spend how ever many hundreds of dollars out of pocket to buy the device you want, uncrippled and unstained by carrier firmware...I'm the same way. My Tilt has been running modified firmware since the day I bought it. But day in and day out people come to my store demanding a free phone. They don't really care how they get it...they just want to not pay out of pocket.

Given this, I think ETFs are now the way they should be. Pro-rated based on the amount of time left on the CONTRACT you CHOOSE to sign, in exchange for a subsidized phone.

However, I think more effort should be made to educate the customer. The average American at this point still thinks mobile phones are free. The subsidy/contract/ETF model has never been explained to them, nor the fact that many of these mobile devices are highly advanced and expensive.

DF7