Consider the Company’s Perspective on Cell Phone Contract Cancellation

Photo: spcbrass

It may seem like cell phone service providers charge early termination fees just because they can, and there’s some truth to this. If millions of consumers, acting on their own free will, are signing long-term contracts that provide for early termination fees, they must find it acceptable on some level or they wouldn’t sign the contracts. There are plenty of alternatives these days, and those alternatives have been around for as long as anyone’s current contract has.

Don’t forget about that free or heavily discounted phone you receive when you sign up for a plan. The company provides this phone discount with the expectation that they will recoup its cost over the life of your contract. If you end the contract early, the company loses money on the phone. Verizon’s website, for example, clearly shows the discount consumers get by agreeing to a two-year contract. You’re welcome to sign up for month-to-month service, but you’ll have to pay the full price for the phone. For example, if you want Motorola’s Droid 3, you can get it for $199 as part of a two-year contract that has a $350 early termination fee, or you can buy it for $459 and sign up for a month-to-month agreement. (These price differences do raise the question of why the early termination fee is $91 more expensive than buying the phone outright.)

If cell phone companies are going to offer heavily discounted phones, they need a contract provision that protects them against people signing up for a plan, getting a discounted phone, then canceling the account. It's unfortunate that consumers who have legitimate reasons for wanting to exit a contract early have few alternatives to paying the early termination fee and rarely seem to get the benefit of the doubt from the cell phone companies. If a consumer's call quality or data service inexplicably declines, customers should have recourse, but that doesn't seem to be the case.

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