WASHINGTON,
D.C.— Nearly half (47%) of all 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
national survey released today by PIRGIM.
"Consumers
are captives locked in a cell by early termination fees preventing them
from shopping for better or cheaper cell phone service,” said Megan
Owens, PIRGIM Consumer Advocate. "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 Federal Communications Commission (FCC)
review of a petition from the cell phone industry that, if granted,
could eliminate state oversight of Early Termination Fees (ETFs), which
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% of the cell phone service in the U.S.
“In short, the wireless companies would rather stifle competition rather than compete for the customer’s business,” added Owens.
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%) 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%) of the respondents replied that the early termination fee had prevented them from switching.
-
Nearly 9 out of 10 (89%) 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% of consumers who
switched in the past three years ($2.5 billion) with the potential
benefits others have lost or can’t afford ($2.1 billion), cell phone
early termination fees cost consumers more than $4.6 billion from 2002
to 2004.
-
More than three out of four (77%) of the consumers either strongly
support (57%) or support (20% elimination of the early termination
penalties.
The
national survey supports an informal PIRGIM survey: “Can You Hear Us
Now.” That survey of 274 Michigan cell phone customers found that 60%
of customers who were not “very satisfied” with their cell phone
service said early contract termination fees prevented them from
switching providers. In addition, 83% reported having problems with
their cell phone company and just over half of those who complained to
their provider had their problem resolved satisfactorily.
In
response to consumer lawsuits in several states, including California,
Florida and Illinois, challenging these early termination fees (ETFs)
as unfair, the cell phone industry has petitioned the Federal
Communications Commission (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 services.
“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 Owens.
U.S.
Rep. John Conyers (D-Detroit) and 14 other members of Congress sent a
joint letter today to FCC members saying they “strongly urge you to
deny” the petition or “any action that would preclude states from
enforcing their own laws to protect consumers from unfair and
anti-competitive business practices.”
”Locked in a Cell” recommends:
1.
The FCC should reject the cell phone industry’s petition and neither
Congress nor any federal agency should accede to the industry’s demands
to eliminate strong state and local protections.
2. Mobile phone companies should eliminate the use of early termination fees and similar unfair practices.
3.
The U.S. Government Accountability Office (GAO) should study the
impacts on consumers, competition and the economy of high concentration
and market power in the wireless industry.
“The
FCC can promote consumer choice by denying the industry petition or it
can keep consumers locked in cell phone hell by siding with industry,”
concluded Owens.
