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Cell Phone Customers Held Captive by Termination Fees

August 11, 2005

• How to Avoid Early Termination Fees • Site Offers Cell Phone Contract Swapping --- News • Judge Rules Sprint Termination Fees are Illegal • Verizon Pays $21 Million to Settle Termination Fee Lawsuit • Washington Power Grab May Be Price of Lower Cell Phone Termination Fees • U.S. Cellular Settles 'Free' Phone Complaint • Cell Phone Industry Losing Its Treasured Arbitration Clauses • Wireless Firms Face Pressure On Termination Fees • Verizon, FCC Cook Up Termination-Fee Plan • FCC Not Ready to Pry Open Wireless Networks • Sprint Removes Three Fees, Adds Two New Ones • Sprint, T-Mobile Prorate Termination Fees • AT&T Changes Contract Policy • California Supreme Court OKs T-Mobile Class Action • Verizon Wireless Changes Contract Policy • FCC, Congress May Limit Cable, Cell Phone Termination Fees • Cell Phone Consumers Win Court Victory • Text Messaging Charges Surprise Cell Phone Users • Cell Phone Customers Held Captive by Termination Fees • Poll Finds Cell Phone Users Want Stronger Consumer Protection • Michigan Challenges One-Sided Cell Phone Contracts • New York Considers Tough Cell Phone Consumer Protection Law • California to Try Again With Telecommunications Bill of Rights • California Suspends Wireless Bill of Rights • California Adopts Wireless Consumer Bill of Rights

Nearly half of U.S. cell phone customers would switch or consider switching cell phone service carriers to get a lower rate and better service if they didn't have to pay an average penalty of $170 to cancel their service contract, according to a new economic analysis and survey released today by U.S. PIRG (Public Interest Research Group).

"Consumers are captives locked in a cell by early termination fees preventing them from shopping for better or cheaper cell phone service," said Ed Mierzwinski, U.S. PIRG Consumer Program Director. "No cell phone company has to honor its promises if its customers can't afford to shop around because of unfair penalties."

The report's release coincides with a review by the Federal Communications Commission, of a petition from the cell phone industry that, if granted, could preempt, or eliminate, state oversight of Early Termination Fees.

The fees range from $150- $240 depending on the company. The report also follows last week's Nextel/Sprint merger approval, leaving just four companies to provide more than 80 percent of the cell phone service in the U.S.

The report is a follow-up to a March 2005 MASSPIRG report: "Can You Hear Us Now." That survey of 874 Massachusetts cell phone customers found that 42 percent of consumers reported having a billing problem with their provider and 68 percent reported dropped calls and other quality problems.

"Not only does this new survey find that more than three out of four Americans want these unfair fees eliminated, but our economic analysis also shows that when you combine the penalties some consumers have paid with the benefits others have lost or can't afford, these penalties have cost consumers more than $4.6 billion in the last three years," said Mierzwinski.

The new report, "Locked in a Cell: How Cell Phone Early Termination Fees Hurt Consumers" includes analysis of a phone survey conducted by the polling firm IPSOS North America of 1000 U.S. households in July 2005. Key findings include:

• Nearly half (47 percent) of cell phone customers would "switch cell phone companies as soon as possible" or "consider switching cell phone companies" if early termination fees were eliminated.

• More than one out of three (36 percent) of the respondents replied that the early termination fee had prevented them from switching.

• Nearly 9 out of 10 (89 percent) of the consumers agreed that the early termination fee is "a penalty to discourage switching cell phone companies".

• Combining the actual costs incurred by the 10 percent of consumers who switched in the past three years ($2.5 billion) with the potential benefits others have lost or can't afford ($2 billion), cell phone early termination fees cost consumers more than $4.6 billion from 2002 to 2004.

• More than three out of four (77 percent) of the consumers either strongly support (57 percent) or support (20 percent elimination of the early termination penalties.

In response to consumer lawsuits in several states, including California, Florida and Illinois, challenging these early termination fees as unfair, US PIRG says the cell phone industry has petitioned the FCC to treat ETFs not as penalties designed to restrict consumer choice, but as a part of the rates that the companies charge their customers for cell phone.

"If the FCC were to grant the industry's petition, then the cell phone industry would try to have state laws inappropriately preempted from applying to early termination penalties," said Mierzwinski. "In short, the wireless companies want to stifle competition rather than compete for the customer's business."

U.S. Rep. Anthony Weiner (D-NY) and 14 other members of Congress sent a joint letter today to FCC members saying they "strongly urge you to deny" the petition and "urge you not to take any action that would preclude states from enforcing their own laws to protect consumers from unfair and anti-competitive business practices."

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