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Consumers confused about early termination fees: FCC survey

An FCC survey showed that nearly half of mobile phone users who have plans with ETFs do not know for how much they are accountable.

The FCC survey also indicated almost two-thirds of home broadband users with ETFs do not know the amount, and that 30 million Americans?one in six mobile users?have experienced ?bill shock,? a sudden increase in their monthly bill that is not caused by a change in service plan.

?We believe it is important for consumers to have clear actionable information to understand contracts they sign, bills they pay and understand their options if they ever decide to change providers,? said Joel Gurin, chief of the consumer and governmental affairs bureau at the FCC, New York.

?We?re focusing on what we?ve learned about mobile services in terms of bill shock and early termination fees,? he said. ?The major take-home message is that people still don?t know what they really should know in order to manage these types of fees and billing issues to get the best services in the best possible way.?

The FCC?s survey of consumers, conducted by Abt/SRBI and Princeton Survey Research Associates International from April 19 to May 2, interviewed 3,005 American adults.

The national, random, digit-dial survey was conducted in English and Spanish and the sample included both landline and mobile phones.

Carrier bill shock, unknown early termination fees
One in six mobile users have experienced bill shock, and less than 20 percent said that the carrier had contacted them about the problem either before or after the bill increase, according to the FCC.

?We do know there are some carriers out there that are beginning to alert their customers when they are headed toward bill shock territory, but it?s still not a common practice, and we want to see best practices become common practices,? Mr. Gurin said.

?Looking at early termination fees, the single most striking finding is that so few people know what they are?about half of cell phone users that are subject to an early termination fees didn?t know the amount,? he said. ?People really don?t have the information they would want to have to make the decisions they should.

?A minority of people, even among people who said they understand their mobile bill, only 36 percent said they understood early termination fees.?

The FCC said that there is still more that can be done to help customers navigate what is sometimes a confusing marketplace.

A simple and easy to understand mobile purchase and billing process will empower consumers to avoid bill shock and other unexpected fees.

The FCC has been working to clear up consumer confusion surrounding bill shock, ETFs and other issues.

Last August, the Commission launched a proceeding to examine ways to empower consumers to make smart, informed decisions when it comes to communications services.

In January 2010, the Chiefs of the FCC?s Consumer and Governmental Affairs and Wireless Telecommunications Bureaus sent letters to the major wireless carriers to learn more about their early termination fees.

And as one of the first initiatives undertaken by the FCC?s Consumer Task Force, in early May the Consumer and Governmental Affairs Bureau released a Public Notice asking about possible solutions for bill shock. 

The survey released today supports the agency?s efforts by supplying essential data about the consumer experience.

The survey notes that 83 percent of adults in this country have a mobile phone, and 80 percent have a personal mobile phone?one for which their employer does not pay the bill.

The survey also asked about cell-phone coverage: 58 percent of mobile phone users say they are very satisfied with the number of places they can get a good signal.

The survey finds that of the 30 million Americans who have experienced bill shock:

? 84 percent said their mobile carrier did not contact them when they were about to exceed their allowed minutes, text messages, or data downloads.

? 88 percent said their carrier did not contact them after their bill suddenly increased.

The amount of bill shock varies widely but is often sizeable, according to the FCC.

In the survey, more than a third of people who experienced bill shock said their bills jumped by at least $50, and 23 percent said the increase was $100 or more.

The survey also asked consumers about early termination fees for mobile phone and broadband service.

Of the respondents with personal mobile phones, 54 percent said they would have to pay an ETF should they terminate their contracts before the expiration date, and 18 percent did not know whether they would have to pay or not.

Of those who are subject to an ETF, 43 percent said it was $150 or more, but 47 percent did not know how much it was.

One reason for the confusion is billing practices: Only 36 percent of mobile phone customers who are familiar with their bills said that they include ?very clear? information on ETFs.

The findings were similar for home broadband termination fees, with some differences.

Only 21 percent of home broadband users say that their contracts include an early termination fee.

Of those consumers, however, fully 64 percent do not know what the fee is?a higher level of confusion than for mobile phone service.

The survey shows that ETFs are one factor that can keep mobile phone customers from switching carriers even when their service is not ideal.

Forty-three percent of these customers said ETFs were a major reason they would stay with their current service, almost exactly the same number who said they would be deterred from switching by the cost of setting up a new service or by paying a deposit on a new service.

FCC?s consumer tips
? When signing up for a new cell-phone service, make sure you are fully aware of any early termination fees (ETFs) that may be associated with the contract you are signing. The salesperson may not mention an ETF, so be sure to ask.

? Ask how much the early termination fee will be and how it is prorated.

Prorating means that the amount of the ETF you are responsible for decreases month by month. But different carriers prorate different plans in different ways.

For example, one $240 ETF might decrease by a steady $10 a month over two years, while another high ETF might drop by only $5 a month until the last four months.

? Ask if it would be possible to buy a handset at full price and avoid an ETF. 

? Think before you make any changes in your contract, such as buying a new phone or more minutes that your carrier might offer. This could trigger a new two-year contract with another ETF.

? Ask about the trial period during which you can cancel the service without an ETF penalty.  This is typically 14 to 30 days.

Also ask whether you will get your first bill before the trial period is up, and if not, whether you can find out about your costs during the trial period in another way.

? If you use your phone sparingly, consider avoiding the whole ETF issue by buying a prepaid phone.  These phones do not involve a contract. 

The FCC did not disclose whether or not it is pursuing legislation to enforce best practices among carriers.

?Our focus is all about clarity and disclosure to consumers,? Mr. Gurin said.