Tuesday, January 26, 2010

Mobile Early Termination Fees

So mobile phone contracts pretty much all come with an Early Termination Fee (ETF) that basically allows the company to recover the cost of the phone that you probably purchased at a substantial discount.

When you sign a 2 year contract and get a $30 phone, the phone isn't really $30. You are, in part, paying for that phone with your monthly contract.

Recently these ETFs have increased for certain carriers. My question isn't why; the new smart phones out today are not cheap. I just don't understand why each contract isn't configured to account for the specific phone and it's retail value. Why not prorate the value of the phone based on the start date of the contract?

If I went to AT&T and got a new iPhone with an unlimited plan I'd pay nearly $3000 over two years. $200 of that is for the phone still. The actual phone is probably $500-600, though you can't easily buy it without a contract, certainly not from AT&T. If AT&T is even pay $500, do you think they'd let you cancel your contract after a couple of months and not expect some compensation? Of course not.

I think mobile contracts should be set aside from the cost of the phone. You pay X number of dollars per month for the service alone. You buy the phone separate from the contract. No lock-in, no ETFs. Those who want their phone subsidized should pay a separate fee, that is based on the price of the phone; leasing the phone instead of buying.

The problem is that the mobile companies don't want you to be able to come and go as you please like that. Each of them want to lock you into their service. So rather than providing a service that is built on quality, that would keep customers because they are happy, they have built a way to keep customers regardless of how they feel.

ETFs are not about the phones. I know I just painted the picture above that suggests that and I'm sure their PR reps will tell you the same thing, but the reality is that it's about keeping customers. If they can't keep them they are going to penalize them as much as they can get away with.

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