If you're like most Americans, you're probably looking to save money any way you can at the moment. One easy way to do that is to switch from your current cell phone plan to a cheaper service. But many people are afraid to switch carriers or plans, for fear of being dinged with an expensive contract "early termination fee (ETF)," which can average $175 dollars, and as much as $350 if you're a Verizon customer.
San Francisco-based Consumer Action, in partnership with low-cost mobile carrier TRACFone, is advocating for consumers to dodge the ETF trap, claiming that even a heavy cancellation fee penalty can be offset by the savings gained from several months of low-cost cell phone service. As Consumer Action Executive Director Ken McEldowney put it in a press conference today, "informed consumers can make smart choices in the marketplace...consumers have a golden opportunity to save hundreds of dollars by making a switch in wireless carriers."
McEldowney and Consumer Action outlined four steps wireless customers can take to avoid getting slammed with termination fees:
• Determine if you are in the ETF "penalty box." Not sure if you face an ETF? Get on the phone with your cell phone company and find out what penalty (if any) you would face for switching providers. If youve had your cell phone and current plan for two years or more, you may be out of the ETF penalty box. All four of the major wireless carriers -- AT&T, Verizon Wireless, Sprint, and T-Mobile, have prorated their ETFs over the life of a two-year contract, but many customers will still find themselves owing some amount when renewal time arrives.
• Do the math on your cell phone penalty. Dont just take a penalty at face value if it is in the range of $150-$200. If you are now paying $90 a month for basic cell phone service and switch to a cheaper cell phone service, you can "pay off" a $150 penalty in just three months. After that point, you would be saving $45 a month compared to your current plan.
• If you are out of the penalty phase and want to stay out of it, avoid being lured back into it by your cell phone provider. When contract renewal time arrives, many providers will offer discounts on phones, more minutes on your current plan, and many other enticements in order to sign up for another contract -- which carries another hefty ETF with it.
•If you want to switch, keep an eye out for your cell provider changing the terms of the contract. Under certain circumstances, major changes by your cell provider to the terms of the contract you signed can be used as the basis for escaping early termination fees. If you are interested in switching cell phone providers and want to avoid an ETF, be on high alert for bill inserts, emails and phone calls that spell out new terms and ask for you to agree to them. Keep in mind that your cell phone provider doesnt want you to use the contract term changes as a basis for switching, so this may all be buried in the fine print.
For more adventurous customers, McEldowney recommended using a contract-swapping service, where another person takes on the contract in exchange, but warned that it can be relatively costly, though still cheaper than paying an ETF.
Although a low-cost carrier like TRACFone would obviously benefit from more wireless customers switching to its cheaper and prepaid services, McEldowney emphasized that they were not directing the course of Consumer Action's initiative against ETFs. "We retain editorial control," he said.
One correspondent brought up the claim that the wireless industry often makes -- that contracts and ETFs are necessary in order to subsidize the sale of handsets at low prices, and recoup the company's investment. McEldowney was skeptical, saying that if the wireless industry was worried about that, they "didn't think clearly about their 'Buy one, get one free' offers."
"I'd like to see more data on whether or not there is a direct relationship between the manufacturer price and the ETF fee," he added. "I bet the phone is far cheaper."
As part of a recent filing with the Federal Communications Commission (FCC), several consumer groups, including Consumers' Union and Free Press, claimed that the average cost of a wireless phone to a carrier is $14.33 -- and that even the cheapest ETF of $175 represents a profit over ten times greater than the cost of the phone itself.
Termination fees have been a hot topic in the industry for years, and have been getting attention on Capitol Hill of late. The FCC sent an inquiry to Verizon asking it to justify its termination fee hike, and the Government Accountability Office (GAO) released a report recently claiming that 42 percent of wireless customers would not switch carriers for fear of incurring a fee.