News

FCC Considers Exit Fees

6/06/2008 8:00 PM Eastern

The Federal Communications Commission will hold a hearing here Thursday to examine early-termination fees by several industries, including cable and satellite TV providers, as well as wireless telephone carriers. The scope of the hearing began with wireless carrier termination fees, but was expanded by FCC chairman Kevin Martin.

As of last Thursday afternoon, the FCC had not released a witness list, but representatives from the pay TV industry were expected to be invited, an agency spokesman said.

“This hearing is a starting point for the commission to consider this highly visible issue,” the FCC spokesman said.

“We welcome the opportunity to share with policymakers the many subscription options that cable providers offer consumers, which are typically much more flexible than the contract commitments and steep cancellation fees required by our competitors,” said National Cable & Telecommunications Association vice president of communications Brian Dietz. “In today’s competitive marketplace, we encourage customers to shop around for the plan that best fits their needs.”

According to officials at Comcast and Time Warner Cable, each subscriber has the ability to purchase voice, video and data services separately on a month-to-month basis without any fees. Both MSOs, however, have introduced long-term commitments for their triple-play offerings that include $150 early departure fees that are not prorated.

Time Warner has introduced its “Price Lock Guarantee” in 18 markets, including New York City, Kansas City, Mo., and eastern North Carolina, said the operator’s director of public relations, Robyn Watson.

“If a customer wants to lock in their current bundle price, where available, they can sign up for 'Price Lock Guarantee’ to ensure that they continue to pay the same price for at least two years,” Watson said, adding that consumers enjoy a 60-day risk free trial.

ETFs imposed by wireless carriers brought the issue to a head at the FCC. AT&T and Verizon, for example, structured their fees in a manner that ended up angering consumers and riling state-level consumer-protection officials. Generally, a new wireless subscriber that entered the long-term contract agreed to pay a non-prorated $175 fee to discontinue service prior to the end of the commitment period.

Consumers complained that they felt locked in, especially if they viewed the service as having too many dead zones, leading to poor perception and dropped calls.

Last month, AT&T agreed to reduce its ETF for new and renewing customers by $5 per month over the life of the contract. Verizon has a similar program in place.

Martin last week told CNBC that he favored a national framework for ETFs. He indicated that he is concerned about the size of the fees and the amount of time consumers were being given to test wireless devices.

“We’re going to have a public hearing … where we’re asking whether or not consumers should continue to be charged an early termination fee,” Martin said. “I think that consumers do deserve … to purchase their cellular service and take it home and make sure it does work the way they were promised it would in the store and if they bring it back, not be charged that kind of a fee.”

Like Time Warner Cable, Comcast offers its voice, video and data services on a bundle basis. Consumers can sign a 24-month contract with a non-prorated $150 ETF. The long-term deal, which includes a 30-day, risk-free trial, can save customers $300 to $500 over the duration of the contract.

Nevertheless, the vast majority of Comcast’s triple-play customers choose the $99 month-to-month option. “A very small percentage of our customers are on contracts,” a Comcast spokeswoman said.

Verizon’s FiOS service includes a Triple Play option that includes a $119 ETF for a one-year contract and a $150 ETF for two-year deals. FiOS TV is available with no ETF and long-term FiOS Internet contracts include a non-pro rated $99 ETF. FiOS Triple Play customers can save more than $400 a year by signing long-term deals.

“We think these are reasonable and they’re designed to encourage people to stay with us,” said Verizon FiOS spokesman Eric Rabe.

AT&T’s U-Verse service, which includes voice, video and data, has no ETFs, whether the consumer buys one product or the triple play, an AT&T spokesman said.

DirecTV, the leading satellite TV provider, has a more rigid consumer commitment policy than cable.

DirecTV customers that lease equipment must agree to stay with the service for 18 or 24 consecutive months. Depending on the level of service and the type of equipment leased, DirecTV imposes pro-rated ETFs of up to $360 and $480 dollars. The vast majority of DirecTV customers lease their equipment.

“We make certain we provide information about the lease programming commitments to customers at each step in their sign-up process, from point-of-sale to installation to activation,” DirecTV spokesman Robert Mercer said.

June