Early termination fees aren’t by themselves unfair. Cellphones, especially smartphones, are heavily subsidized, a fact which is frustratingly not very well known; many people really do think their iPhones are ridiculously cheap, at $200, when in fact a 32GB iPhone 3GS actually costs $700–in that case, AT&T just charges a bit extra, month by month, until the $500 advance is paid off. Since the wireless carrier is drastically cutting the entry price of a cellphone in exchange for a multi-year contract, it’s only fair that they charge a bit of cash for those who want to ditch.
But for whatever reason (likely greed rather than need–these companies aren’t hurting financially), some of the wireless carriers have decided to bump the early termination fee, or ETF. Verizon doubled theirs last year, and now AT&T is nearly doubling theirs, taking it from $175 to $325. AT&T’s explanation is pretty laughable–at the same time as they jack up the smartphone ETF, they’re very, very slightly lowering the dumbphone ETF, from $175 to $150. That $325 will decrease by $10 per month, instead of the usual $5, until the two-year contract is up. The idea, foolhardy and unfair as it is, is that a costlier phone deserves a costlier ETF, and a cheaper phone deserves a cheaper ETF.
Of course, that doesn’t explain why the smartphone ETF nearly doubled and the dumbphone ETF was lowered by a crummy 14%. It also doesn’t differentiate between the vastly different price points of smartphones available.
Let’s not lose sight of the fact that Verizon’s ETF is $350–AT&T’s just keeping up here. But given AT&T’s less-than-stellar reputation and the fact that Apple‘s iPhone is no longer anywhere near the only hot smartphone in town (HTC Evo 4G on Sprint, Nexus One on T-Mobile, and HTC Incredible on Verizon), customers aren’t likely to be too pleased with the change.
The change goes into effect on June 1st, and will affect any new contracts and upgraded existing contracts.