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FCC asks major telecoms — and Google — to explain early termination fees

January 26, 2010 |  2:43 pm
Nexus-one
Google's Nexus One smart phone and an unidentified canine. Credit: Jeff Chiu / Associated Press
The Federal Communications Commission today sent  inquiry letters to the nation's major telecommunications firms -- and Google Inc. -- in an effort to shed light on the industry's often confusing  practice of charging consumers to end their cellphone service contracts early -- so called early termination fees, or ETFs.

"We are now writing simultaneously to multiple companies to ask a standard set of questions on approaches to ETFs and their implementation," the FCC wrote to AT&T, Verizon, Sprint, T-Mobile and Google.  "This is an essential step to ensuring that consumers have the information that helps them make informed choices in a competitive marketplace."

The letters included about a dozen questions on different industry practices relating to ETFs -- including a question about why the fees are necessary at all. 

The fees are a penalty for ending multiyear phone contracts, during which consumers  often pay wireless companies thousands of dollars for phone and data service.  The revenue from those contracts in turn allows wireless providers to lure new customers by offering steep markdowns on the often-expensive smart phones. But the contracts prevent existing users from leaving their provider if they are unsatisfied with their service, or if they see a better deal elsewhere.

The inclusion of Google in the set of companies contacted by the FCC was related to the tech giant's recent launch of the Nexus One handset, the first phone marketed directly by Google.  The company took some licks when observers noticed Google had attached its own $350 early termination fee to the Nexus One.  Anyone who bought the phone, along with the default T-Mobile service contract -- would have to pay termination fees to Google as well as to T-Mobile -- a decision that could cost up to $550.

"The combination of ETFs from Google and T-Mobile for the Nexus One is also unique among the four major national carriers," the FCC told Google. "Consumers have been surprised by this policy and by its financial impact."

The FCC requested that the companies respond to the questions by Feb. 23, but have the option to request that their answers be treated confidentially.

-- David Sarno

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