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Early Termination Fees. ETFs. The bane of the cell phone subscriber’s existence. No one wants to pay $175 or $200 to rid themselves of a service they don’t like, or can no longer use. But that’s the way it is in the cell phone industry. While some companies, like Verizon and AT&T, have announced pro-rated early termination fee initiatives, it’s still not a standard in the industry. That is, until the government stepped in. Reports are that they are working with cell carriers to work on a way to make these fees a bit more reasonable.

The reason for early termination fees is simple. When you go into a cell retailer, they’re filled with phones that cost a lot of money. There’s a huge markup somewhere along the line, and I’m not sure where, but it seems like the furniture business to me. Anyway, in order to make these phones more affordable for customers, carriers offer to subsidize a portion of the cost.

What does the carrier get in exchange for this subsidy? A commitment, usually two years in length, from the customer. They figure that the profits they make from this customer will far exceed the one-time subsidy they provide for the phone.

So it’s easy to understand why they implement early termination fees. You made a deal with them, and you broke the deal. Ergo, you must even things out, since you still have your cheap phone, and the company hasn’t received what it thought it was getting by selling it to you at a discount.

The problem before was that these fees remained static, whether you cancelled after 45 days or after 23 months. Surely, a carrier can’t claim the that the damages are the same for canceling after three months and canceling after 18. Hence, the pressure to implement prorated ETFs.

The deal here is that they’re trying to make this an industry standard, which I think is a good idea. No, you don’t want the government dipping their hands in with excessive regulation. But early termination fees are at the root of a number of law suits. The avoidance of these suits might be a good enough reason to force proration on carriers. The deal, still being negotiated, also includes a provision that would allow customers to exit a contract fee-free within 30 days of signing up, or within 10 days of receiving their first bill.

This is what I’d like to call smart regulation. The policy might be a bit restrictive for carriers, but it saves them from an onslaught of lawsuits, and it saves the customers the headache of paying $175 to cancel their service.

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