AT&T to pro-rate early termination fees for cell-phone contracts

In another sign of the growing consumer power in the cell phone marketplace that we reported last January, AT&T has joined Verizon in pro-rating its $175 early termination fee, a major thorn in the side of respondents to our latest survey of cellular service providers (available to subscribers).

But three other big wireless service providers, Alltel, T-Mobile, and Sprint, have yet to deliver on their promises to do likewise this year. Those providers still ding you for up to $200 if you cancel your cell phone contract before its full term is up. Consumer advocates including Consumers Union, Consumer Reports' parent organization, consider such flat fees to be unjustified, since consumers continually repay the cost of a low-priced or "free" cell phone with a portion of their bill each month.

AT&T's plan is similar to Verizon's. For both, there is no cancellation fee for the 30-day trial period at the beginning of a new cell phone contract, during which new customers can quit the service if they're dissatisfied. Thereafter, the $175 fee on one- and two-year contracts is reduced by $5 for each month you stay with the service.

Verizon began pro-rating its cancellation fees in November 2006. AT&T will commence pro-rating for new and renewal customers on May 25. That means, if you're thinking about switching to AT&T or renewing your contract to get an updated, discounted phone, you should try to wait to do so until May 25. Contracts signed before then—and, of course, existing older contracts that have not yet run their full term—will still be subject to the flat $175 cancellation fee.

Spokespeople from the three major cellcos that are yet to implement pro-rating were vague when we called them to inquire about timing. "All I can say is it's in the process," said Scott Morris, an Alltel spokesman. Sprint blamed a new customer-billing platform, which is expected to be in place at the end of June. "Once we do that, we'll implement pro-rating," said Roni Singleton. T-Mobile's response was to repeat its less-than-specific November 2007 press release, which promised only that early termination fees "will decline during the course of a customer's contract term with T-Mobile."

Sen. Amy Klobuchar, D-Minn., calls the AT&T announcement "a welcome but long overdue step." Last year, she introduced federal legislation that would have required pro-rated fees, among other fairness protections for consumers. Now Klobuchar wants the sluggish cell companies to follow through or explain why they're not going to do it. "It is time for the wireless companies to adhere to the assurances they made to the American consumer," she said.

—Jeff Blyskal

—Paul Eng