Back in December, the FCC proposed to prohibit cable companies and satellite companies from charging “unjust or unreasonable early termination fees for end-user communication contracts”. The order was the latest in a series of orders intended to make prices and policies more transparent for customers. The FCC reasoned that termination fees stop customers from canceling services and that eliminating or lowering the fees would promote competition by lowering barriers.
The FCC also asked if it should require cable providers to prorate a customer’s final bill in the month that a customer cancels service. Most cable companies keep the entire final bill regardless of the days of actual service provided. I note from personal experience that online video services also keep the final full month of billing.
Some termination fees for breaking a term contract are extreme and require a customer to pay the full amount of the remaining contract even if they don’t receive the cable service. It’s easy to understand why that is extreme – a big part of the monthly cable fee to subscribers pays for the high cost of the subscribed programming. When a customer cancels a contract, the cable company is no longer paying for programming, and this makes the remaining fees incredibly profitable. It’s odd math, but a cable company’s highest margins come from customers who cancel video service.
The FCC has also heard a lot of horror stories of why customers cancel service. Cable companies are infamous for advertising a low teaser rate but then adding $30 to $50 per month onto the promised rate in the form of hidden fees that were not included in the advertised teaser rate. Many customers quit after the shock of the first bill. The FCC voted in March to force cable companies to eliminate hidden fees, but there will be contracts around for many years that include the impact of hidden fees.
Cable companies have filed comments against the FCC’s proposed elimination of early termination fees. The most creative defense for keeping the fees comes from NCTA, the trade association for the big cable companies. NCTA argued that eliminating early termination fees would harm consumers. They argue the video industry is hyper-competitive and that discounts were created to benefit customers who stay for a long time, not customers who want to switch to another provider. NCTA argues that longer subscriptions reduce long-term acquisition costs and provides a more stable revenue stream for the cable company. It’s hard to think of an argument that could be more pro-cable company and zero pro-consumer.
The Internet and Television Association offers an alternate idea to an outright ban and suggests that the FCC only ban “unjust or unreasonable’ termination fees. They didn’t specifically offer how to distinguish an unjust fee from a reasonable one, but they argue that as long as termination fees are fully disclosed to customers the fees should not be considered as unreasonable.
When the general public hears this kind of announcement from the FCC, they probably wonder why the FCC is always trying to fix cable TV rules but not broadband rules. This is due to the lack of regulatory oversight on broadband. If the courts let the recent FCC adoption of Title II regulations go into effect, the FCC could apply all of the same concepts to broadband as well.
A fairer question to ask is why the FCC hasn’t fixed these kinds of problems in the past. High hidden fees and excessive termination fees have been around for years, and the FCC did nothing about them. The FCC is supposed to find a middle ground between the general public and the companies it regulates. Past FCCs have clearly favored the big cable companies over the interests of the general public, and even a pro-consumer FCC has taken years to get around to these issues.
I’m a bit mixed on this. I very much agree with the ‘no junk fees’ and no punishment fees. However, there are real costs involved in bringing in services, so in those circumstances where a contract is to offset costs, then there should be consequence for early cancellation.
The alternative is that those costs are spread across other customers.
Also, do we really want the FCC to be able to upset contract law? Killing telecom and internet junk fees is one thing, but a standard contract for services shouldn’t be within the FCC’s jurisdiction.
Same here, if the client can kill the contract with no repercussions then I’d like the same liberty on my auto loan…
Early Termination Fees (ETFs) have been around for many, many years, and certainly since the advent of Cellular Phone Service. The “cost” of cellular service included a discount price on the equipment for the customer, along with (usually) a two-year commitment to retain the account.
The ETFs were charged when the contract was ended early and abruptly… as an attempt by the carrier to “claw back” the acquisition costs — any commissions paid, and any discounts applied. (By the way, the carriers also attempted to claw back the commissions paid to dealers and sales reps.)
But the truth was never cut-and-dried. The ETFs were always hefty ($300?), and were sometimes waived, and the whole experience left a very nasty taste in everyone’s mouth… Well, not the accountants, I’m sure!
The rubber hit road when applied to real life. Phones got damaged, broken, lost and/or stolen during the term-life of the contract, and the assessment of the ETFs were a point of contention. That was why we at the carrier with whom I worked developed our Equipment Upgrade Program… to allow a customer to purchase new equipment at a discount, with a new two-year commitment.
I too agree the “junk fees” should be at least transparent, if not done away with. And I understand the need to recoup acquisition costs. I also know that whatever system is developed, the customers and clients will “game” them ’til the cows come home.
Perhaps there is a way to resolve this?
The most obvious solution to just about any problem like this is transparency. When you advertise a price, that must include all the fees. I don’t really care if the price is $70 and there are 7 fees INSIDE that price, so long as my bill is $70.
ETFs etc should be in the pricing, not the fine print. ($70 on 2 year contract with $300 ETF). If your terms get too wordy for the advertisment people will not show up. self-solving balancing act.
The only time I don’t think this is the best way forward is if there are monopolies. ie, the aformentioned cable cos that are often the only ISP. They should of course have to operate with the same transparency, but when they are the only game in town there’s no back pressure on absurd rules.
Standard consumer protection rules SHOULD be handling that though. Doesn’t need to be industry specific or handled by the FCC.