FCC To Hear Early Termination Fee Debate Today

Posted on Thursday, June 12, 2008

Today the Federal Communications Commission will hear testimony on early termination fees for customers who cancel their mobile phone, cable or Internet service contracts early. Critics of telecom service providers will charge that long-term contracts with cancellation fees are unfair, but in reality, such contracts help more people afford a higher-quality range of products.

In the case of mobile phones, many companies provide customers with low-cost or even free phones in return for customers agreeing to a service contract, often of one to two years. That agreement puts better phones in the hands of customers at every price level, while bringing into the market many who could otherwise not afford a phone at all.

Since the provider is counting on the future revenue from the contract as part of the bargain, they include the early termination fee as insurance that they won't subsidize the equipment costs of customers only to have them immediately jump to other carriers offering yet other deals.