Verizon Wireless vigorously defended its positions on early termination fees and access to Verizon Mobile Web in a 77-page response to the Federal Communications Commission.

The response, sent Dec. 18, came two weeks after the FCC sent Verizon Wireless a letter seeking clarification on early termination fees and Verizon Mobile Web (see story). That letter itself came weeks after The New York Times and USA Today broke stories questioning Verizon Wireless? practices around early termination fees on two-year contracts and the fees incurred by subscribers for inadvertently accessing the mobile Web if they lack an unlimited data plan.

?Verizon Wireless? term contracts with ETFs [early termination fees] promote consumer choice and broadband deployment,? said Kathleen Grillo, senior vice president for federal regulatory affairs at Verizon Wireless, Washington, in her response.

?This pricing structure enables Verizon Wireless to offer wireless devices at a substantial discount from their full retail price,? she said. ?By reducing up-front costs to consumers, this pricing lowers the barriers to consumers to obtaining mobile broadband devices.

?It thus enables many more consumers, including those of more limited means, access to a range of exciting, state of-the art broadband services and capabilities. The company?s pricing structure therefore promotes the national goal of fostering the greater adoption and use of mobile broadband services.?

Here is part of the letter from Ms. Grillo to Ruth Milkman, chief of the FCC?s Wireless Telecommunications Bureau, and Mark Stone, acting chief of the FCC?s Consumer and Governmental Affairs Bureau. A link to the entire document in PDF follows.

I write in response to your inquiry of December 4, 2009, regarding the recent change to Verizon Wireless? early termination fee (ETF) structure for ?Advanced Devices? and certain reports regarding charges for our Mobile Web Service.

Verizon Wireless? term contracts with ETFs promote consumer choice and broadband deployment. This pricing structure enables Verizon Wireless to offer wireless devices at a substantial discount from their full retail price.

By reducing upfront costs to consumers, this pricing lowers the barriers to consumers to obtaining mobile broadband devices. It thus enables many more consumers, including those of more limited means, access to a range of exciting, state of- the art broadband services and capabilities. The company?s pricing structure therefore promotes the national goal of fostering the greater adoption and use of mobile broadband services.

At the same time, consumers are protected by Verizon Wireless? detailed disclosure practices described in this response, by the Worry Free Guarantee, which allows customers to terminate within 30 days of activation without an ETF, and by the monthly reduction in the ETF amount.

On December 17, 2009, Commission staff granted Verizon Wireless a two business day extension of the deadline for filing its response, until December 21, 2009.

Verizon Wireless was the first national wireless carrier to prorate its ETFs, in November 2006.

In addition, consumers have the option of avoiding the ETF entirely by paying full price for the device and subscribing on a month-to-month basis. The overwhelming majority of Verizon Wireless customers, however, choose to commit to a term contract because they see great value in acquiring state-of-the-art wireless devices at heavily discounted prices.

In exchange, consumers sign a contract that commits them to a term of service that pays for the device (and other costs) over time.

The Commission held in 2003 that ?carriers may include provisions in their customer contracts on issues such as early termination and credit worthiness.? In that order, the Commission disallowed wireless carriers from restricting the number porting process, but also stated, ?We do not sanction or encourage consumers to breach their contractual obligations. Nor do we prevent carriers from collecting any outstanding fees or charges from consumers pursuant to traditional contractual remedies.?

That same year, in upholding the lawfulness of an ETF, the Commission noted "the history of Commission approval of early service termination provisions similar to the one at issue here, and the reasonable goals that they generally serve."

It also stated, "The Commission has acknowledged that, because carriers must make investments and other commitments associated with a particular customer's expected level of service for an expected period of time, carriers will incur costs if those expectations are not met, and carriers must be allowed a reasonable means to recover such costs. In other words, the Commission has allowed carriers to use early service termination provisions to allocate the risk of investments associated with long term service arrangements with their customers."

In its most recent annual report to Congress on wireless competition, the Commission found that ?U.S. consumers continue to benefit from effective competition in the CMRS marketplace.?

The Commission noted that ?Fixed-term service contracts and ETFs are part of a traditional industry business model in which providers use handset subsidies to offer consumers a discount on the upfront price of handsets and thereby promote the sale of mobile telephone services.?

Verizon Wireless has recently instituted a two-tier structure for ETFs for term contracts. As more fully explained below, the higher ETF associated with Advanced Devices reflects the higher costs associated with offering those devices to consumers at attractive prices, the costs and risks of investing in the broadband network to support these devices, and other costs and risks.

More in the PDF document ...

Kathleen Grillo
Senior vice president - federal regulatory affairs
Verizon Wireless

Please click here to access the PDF document for the entire Verizon Wireless response to the FCC.