Released: December 17, 2009

Avoid costly cell phone fees

Consider new low cost wireless plans instead of contract-based phone service

Contact: Ken McEldowney, 415-777-9648

Note: A streaming audio recording of the news event will be available as of 6 p.m. EST/3 p.m. PT today.

San Francisco — Are you tempted to switch your contract-based cell phone plan to cheaper unlimited prepaid phone service or another lower-cost cell phone plans? If so, you aren’t alone. And, like millions of other consumers, you may be worried or simply confused about whether or not switching cell phone providers will result in the sting of an “early termination fee” ranging from $175 to $350.

ETFs are one of the ways that contract-based cell phone service providers keep customers from switching to lower-cost cell phone alternatives. In view of the rise of new cheaper cell phone plans that could save millions of consumers up to hundreds of dollars each year, Consumer Action has outlined four steps for spotting and avoiding cell phone “early termination fees.” Even though unlimited prepaid cell phone service is now available for as little as $45 a month, many consumers who could save money on the plans are hesitating because of the fear of paying huge cancellation fees if they exit contract-based cell phone plan with an “early termination fee” penalty.

But the good news is that many consumers are already done with their “penalty phase.” And other consumers are on plans with pro-rated penalties that could be offset after just a few months of cheaper cell phone service. Ken McEldowney, executive director, Consumer Action, said: “Cell phone early termination fee penalties are far steeper than they need to be and unreasonably limit consumer choices.

But until Congress or the Federal Communications Commission does something about them, ETFs are an unpleasant fact of life for consumers who want to save money on their cell phone bills. The good news is that there are steps smart consumers can take to figure out if they are in the ETF ‘penalty box’ and even how to minimize the pain if they do have to pay a penalty.” Despite some recent improvements in the terms under which ETFs are imposed by contract-based cell phone providers, Verizon Wireless recently doubled its early termination fees from $175 to $350 for certain phones. Here is an overview of what you can expect to pay for ETFs on contract-based cell phones.

• AT&T: $175 per phone line.
• Sprint: $200 per phone line.
• T-Mobile: $200 per phone line.
• Verizon: Prorated so that it drops $5 per month, but recently doubled from $175-$350 per month for certain phones.

What are the best ways to deal with hefty cell phone cancellation penalties? Consumer Action suggests:

1. Determine if you are even in the ETF "penalty box." Many consumers are poorly informed about whether or not they face a penalty for switching cell phone services. A March 2009 Opinion Research Center survey found that two out of five Americans (40 percent) do not know what penalty they would pay if they canceled their cell phone service. While this confusion extends to 60 percent of consumers aged 65 or older, it also includes 46 percent of those aged 45-54 and 49 percent of those aged 55-64. Not sure if you face an ETF? Get on the phone with your cell phone company and find out what penalty (if any) you would face for switching providers. If you’ve had your cell phone and current plan for two years or more, you can safely assume that you are no longer in the penalty box on ETFs.
2. Do the math on your cell phone penalty. Don't just take a penalty at face value if it is in the range of $150-$200. If you are now paying $90 a month for basic cell phone service and switch to a cheaper cell phone service - such as a prepaid plan offering $45 for unlimited minutes and texting - you can "pay off" a $150 penalty in just three months. After that point, you would be saving $45 a month compared to your current plan.
3. If you are out of the penalty phase and want to stay out of it, avoid lured back into it by your cell phone provider. The ORC survey from March 2009 found that nearly half (48 percent) of cell phone consumers either were already are at the end of their penalty period (7 percent) or in its last 12 months (41 percent). Don't be surprised if, as your ETF penalty period draws to a close, your cell phone provider offers a new phone or more minutes in order for you to start the ETF penalty period all over again!
4. If you want to switch, keep an eye out for your cell provider changing the terms of the contract. Under certain circumstances, major changes by your cell provider to the terms of the contract you signed can be used as the basis for escaping early termination fees. If you are interested in switching cell phone providers and want to avoid an ETF, be on high alert for bill inserts, emails and phone calls that spell out new terms and ask for you to agree to them. Keep in mind that your cell phone provider doesn't want you to use the contract term changes as a basis for switching, so this may all be buried in the fine print.

Other options

For more adventurous consumers who are prepared to go farther to avoid a cell phone ETF penalty, it may make sense to explore a third-party matching service, such as Trade My Cellular, Cell Swapper and Cell Trade USA. These organizations charge up $20 to the person giving up their contract to find someone willing to assume the contract. If you explore this right, be prepared to pay up to $20 to get started and then possibly the first month of the new person's basic cell service as an inducement to get them to take the contract off your hands. That is still going to be cheaper than paying $175 or more!

About Consumer Action

Consumer Action is a non-profit, membership-based consumer education and advocacy organization founded in San Francisco in 1971. It also has offices in Washington, D.C. and Los Angeles, CA. During its more than three decades of operations, Consumer Action has served consumers nationwide by advancing consumer rights, referring consumers to complaint-handling agencies through its free hotline, publishing educational materials in Chinese, English, Korean, Spanish, Vietnamese and other languages, advocating for consumers in the media and before lawmakers, and comparing prices on credit cards, bank accounts and telephone services.

About this campaign

Consumer Action wishes to acknowledge TracFone for the unrestricted support it provided for this consumer education campaign. Consumer Action does not endorse any particular type of cell phone service or any specific cell phone provider.