June 2007
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High costs for changing your cell service
Thinking about buying a different cell phone? Increasing your minutes? Adding a number? Even minor changes can cause a two-year contract to morph into three, four, or more. That’s the biggest complaint Consumer Reports subscribers have about their wireless service.
Most wireless phone contracts also include steep “early-termination fees” to discourage consumers from looking for a better deal. They work. The most recent survey on cell-phone service in 20 metropolitan areas by the Consumer Reports National Research Center found that half of the customers who were considering switching carriers were deterred from doing so by the penalties, which typically range from $150 to $240 per phone number. So a family plan with four numbers could cost you upward of $800 to cancel.
Hefty early-termination penalties have now spread to some high-speed Internet services. Those fees are even more problematic, since broadband service is generally limited by territory. Qwest, for example, doesn’t provide the service in New York City. So a customer in a two-year DSL contract with Qwest who moves from Portland, Ore., to New York will be forced to switch companies and pay a $200 penalty for early cancellation. Since no more than two choices typically exist for broadband service in any given market, consumers have few options for getting a more reasonable deal.
There are no federal laws on the use of long-term contracts and penalties for call and broadband services, but some state regulators and law enforcers have acted against abusive practices. In 2004, the California Public Utilities Commission levied a multimillion-dollar fine against Cingular Wireless, in part for imposing penalties on customers who canceled contracts because of inadequate service.
Fighting back. An investigation by 32 state attorneys general into three leading cell-phone carriers resulted, in 2004, in a three-year commitment by the companies to give customers at least a 14-day grace period during which they could cancel without paying a penalty. Now, most carriers provide them--though they tend to expire before consumers see their first bill and any surprises it might hold.
Some state legislatures have tried to rein in abuses, but the efforts have largely failed in the face of opposition from the wireless industry. As a result, consumers are now seeking relief in state courts, arguing that the size of the fees violates state business and consumer-protection laws.
In response, cell-phone companies have petitioned the Federal Communications Commission to declare that state regulators, state legislatures, and state courts have no authority over cell-phone cancellation penalties, nullifying what little progress has been made on the state front. At press time, that petition was still pending. If it’s granted, consumers will be left completely unprotected unless the FCC also establishes tough limits on fees, contract extensions, and other abuses.
The bottom line. Regardless of who takes action--the federal government, state legislatures, courts, or the companies voluntarily--consumers need relief from exorbitant penalties and anticompetitive practices. When virtually all providers impose the same unreasonable penalties, the benefits that consumers should have gained through competition dwindle.
Thinking about buying a different cell phone? Increasing your minutes? Adding a number? Even minor changes can cause a two-year contract to morph into three, four, or more. That’s the biggest complaint Consumer Reports subscribers have about their wireless service.
Most wireless phone contracts also include steep “early-termination fees” to discourage consumers from looking for a better deal. They work. The most recent survey on cell-phone service in 20 metropolitan areas by the Consumer Reports National Research Center found that half of the customers who were considering switching carriers were deterred from doing so by the penalties, which typically range from $150 to $240 per phone number. So a family plan with four numbers could cost you upward of $800 to cancel.
Hefty early-termination penalties have now spread to some high-speed Internet services. Those fees are even more problematic, since broadband service is generally limited by territory. Qwest, for example, doesn’t provide the service in New York City. So a customer in a two-year DSL contract with Qwest who moves from Portland, Ore., to New York will be forced to switch companies and pay a $200 penalty for early cancellation. Since no more than two choices typically exist for broadband service in any given market, consumers have few options for getting a more reasonable deal.
There are no federal laws on the use of long-term contracts and penalties for call and broadband services, but some state regulators and law enforcers have acted against abusive practices. In 2004, the California Public Utilities Commission levied a multimillion-dollar fine against Cingular Wireless, in part for imposing penalties on customers who canceled contracts because of inadequate service.
Fighting back. An investigation by 32 state attorneys general into three leading cell-phone carriers resulted, in 2004, in a three-year commitment by the companies to give customers at least a 14-day grace period during which they could cancel without paying a penalty. Now, most carriers provide them--though they tend to expire before consumers see their first bill and any surprises it might hold.
Some state legislatures have tried to rein in abuses, but the efforts have largely failed in the face of opposition from the wireless industry. As a result, consumers are now seeking relief in state courts, arguing that the size of the fees violates state business and consumer-protection laws.
In response, cell-phone companies have petitioned the Federal Communications Commission to declare that state regulators, state legislatures, and state courts have no authority over cell-phone cancellation penalties, nullifying what little progress has been made on the state front. At press time, that petition was still pending. If it’s granted, consumers will be left completely unprotected unless the FCC also establishes tough limits on fees, contract extensions, and other abuses.
The bottom line. Regardless of who takes action--the federal government, state legislatures, courts, or the companies voluntarily--consumers need relief from exorbitant penalties and anticompetitive practices. When virtually all providers impose the same unreasonable penalties, the benefits that consumers should have gained through competition dwindle.
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WHAT YOU CAN DO
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