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Reason Foundation

Verizon Wireless shifts ETF terms

Steven Titch
June 29, 2006, 12:19pm

Reacting to customer displeasure with early termination fees (ETFs) Verizon Wireless this week announced a plan to pro-rate the charge, which is assessed on customers who switch from Verizon to other wireless companies before their Verizon contract term is up. While ETFs ostensibly protect the front-end loss carriers take on sale of heavily discounted wireless phones, consumers increasingly have objected to the ETF, which in Verizon's case is $175, along with the increasing length of the commitment carriers demand–now as long as two years. In a concession to this, Verizon Wireless ETFs on individual contracts will now decrease over time. It will cost Verizon customers substantially less to switch carriers in the final months of their contracts as it would at the outset. "The number of complaints on this issue is the single largest that our customers have," said Denny Strigl, CEO of Verizon Wireless, in an interview with AP. He called ETFs a "black eye" for the industry. "It's a legitimate complaint: If they leave in month one or month 23, they pay the same charge." The article notes that for Verizon, which has the best customer retention rates in the industry, the move is less of a gambit than it would be for other service providers. In addition, ETFs have been a target of regulators, and Veruizon's move may be an attempt to fend off government intervention. For example, they would be tightly controlled under a new wireless consumer "bill of rights" proposed in New York State. Verizon's decision, however, shows that the market responds to adverse customer reactions. It's what competition is all about. Perhaps here, one of Verizon's competitors will choose to raise the stakes, and offer a better deal. Hence, ETF reform becomes a marketing proposition that can influence a buying decision, not a uniform code that encourages business conformity.


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