AT&T in Hot Water Over Early Termination Fees

Washington, DCEven though it was only just released on the market, the Apple iPhone has already drawn criticism from a lawmaker over its early termination fees. The criticism came from Rep. Edward J. Markey, D-Mass., who is chairman of a House subcommittee on telecommunications and the Internet. Markey noted, "...you're stuck with your iPhone and you can't take it anywhere."

The problem is that the iPhone can only be used on the AT&T network and will not be available for other networks until at least 2012. This means that customers who are unhappy with AT&T's service and leave the company will no longer be able to use their iPhone, for which they paid up to $600 dollars.

Usually, early termination fees are charged because cell phone companies claim the fees are used to make up for discounts or free phones that are given to encourage customers to sign contracts. However, the iPhone comes with no discount. Customers buying the phone pay the full price, even if they sign a long-term contract. Despite that, AT&T will still charge a $175 early termination fee for any customers who do not stick out their entire contract with the company.

Another reason that early termination fees are imposed is because they discourage customers from switching cell phone carries. As an annual cell phone survey conducted by Consumers Union found, almost 50 percent of customers who considered switching carriers decided against doing so because of the early termination fee. But again, this logic does not work for AT&T because, as mentioned previously, the iPhone cannot be used with any other carrier.

Early termination fees have been a point of contention for consumers for a long time. Although some companies have started prorating their fees, many others have not, meaning that a flat $250 fee can be charged regardless of when the client cancels a contract. Worse, that fee can apply per phone.

What makes things more difficult for consumers is that they can unknowingly extend their contracts. Often when customers make changes to their accounts or upgrade their phones they unwittingly start a new contract, usually for two years. So a family with four phones on a family plan could theoretically wind up in the following situation: With a few months left on their contract, one of the family members loses a phone. A new phone is ordered but now the family is locked into another two-year contract. The family could cancel its contract but it would now have to pay an early termination fee of $175 per phone. Either way, the family is stuck in a no-win situation.

Meanwhile, The New York State Consumer Protection Board has issued a statement, asking Sprint to pay $200 each to customers whose contracts the company recently canceled. Sprint canceled over 1,000 customer's contracts, saying they called the customer service phone line too often. The Consumer Protection Board says Sprint should have to pay its customers an early termination fee. "If someone adheres to a contract and pays for service that carries a termination fee for quitting, it should be a two-way street," said Mindy Bockstein, the board's chairwoman, as quoted in the Los Angeles Times.