The Lack of Choice - Wireless carriers make it difficult to change service providers
One of the greatest things about this country is the availability of choice. Want a breakfast cereal? You can choose from a multitude at your local grocery store. A loaf of bread? White or wheat no longer cut it--now, the more grains you have the better. 5? 10? 15? The grain sky is the limit. The ability for consumers to choose can be a good thing as long as there is actual choice. However, when we look at certain consumer areas--cell phone providers, for example--the actual ability to choose a specific provider is a limited one.
Sure, there are many prepaid providers popping up along the wireless landscape, but it seems that the prepaid providers are shutting down as quickly as they are starting up. Your main choice of carriers in San Diego is the big four: Verizon, AT&T, Sprint, and T-Mobile. Most offer homogeneous plans for a homogeneous set of phones. Nevertheless, even amongst the big four it can be difficult to change providers. The culprit? The early termination fee.
The early termination fee (ETF) is a lovely little device used by the wireless companies to ensure they make all their profit if you, the consumer, happen to change your mind and want to move to a different provider before your service contract is up. The ETF amount is set at the beginning of your contract term and decreases for every month you are in your contract.
Using Verizon as an example, the ETF at the beginning of your contract is $350 and that amount decreases by $10 for each month of service you complete. The large ETF makes it difficult for anyone other than Warren Buffet to switch providers mid-contract. However, what about situations where consumers are near the end of their contract and want to switch providers, say with only a month left on their contract? Even further, the consumers are willing to adhere to their obligation and pay for the remaining months of service. This way the consumer has made all available payments and the wireless carrier is not wanting for any payment or profit. At this point, shouldn't the wireless carrier allow the consumer to cancel their contract before the end of the two-year term without an ETF? The wireless carriers should allow this, but it is not always the case.
Using Verizon as an example, let us say the customer was on the lowest voice minutes plan with the lowest data package for around $70 a month before taxes ($40 for voice, $30 for data). With one month remaining, the customer had made 23 monthly payments to Verizon. This means the ETF should have decreased by $230 (23 months time $10 a month). With one month to go, this customer's total ETF is $120 ($350 original ETF minus $230 reduction). This is approximately $50 more than the customer's last month's payment.
However, we have found that this is not the case. Wireless providers will hold a consumer to the end of their contracts, even after the consumer has made all payments required under the service contract. We believe that this is another example of the lack of availability of choice for a wireless consumer.
Moreover, along this same vein, we have found that wireless companies have put up more barriers to choice by making the process of cancelling your contract at the end of the term very difficult. Most consumers enter into two-year agreements with a wireless service provider. At the end of the two-year agreement, your service contract automatically rolls into a month-to-month contract. This can be a nice feature because it prevents any disconnection of service.
On the other hand, if you want to cancel your contract at the end of the two-year term to avoid any rollover, you need to call the wireless carrier on the exact day your term ends to cancel. If you call too early, the wireless carrier will not let you cancel and will make you call back on the exact day your term ends. If you call too late--after the two year term ended--you can cancel no problem. All you have to do is pay for the remaining month of service.
Again, using Verizon as an example, you must call on the exact day your contract expires to cancel you contract. If you call too early, there is no mechanism available to set a cancellation date for the future. If you call too late, it is easy enough to cancel. However, your cancellation will not be effective until the end of the next billing cycle. Since Verizon was so nice to put you on a month-to-month agreement, this means the end of the next month's billing cycle. If you call the day after your contract expires, this means that you will have to pay for an entire extra month's service. In addition, there is no proration available--you must pay the entire month's amount whether you used one day or 28 days of service.
A colleague of mine calls this the "two year and one month contract." Since you cannot call ahead to schedule a cancellation, the wireless carriers leave you with a very small window in which you can cancel your wireless service without incurring any additional expenses or fees: one day. If miss that day, another month of service is automatically tacked on to your contract, giving you not a two year contract, but a two year and one month contract.
Are you a victim of these barriers to choice? Did you try to cancel your contract in the last month but were forced to pay an ETF? Did you try to cancel your wireless contract after your two-year term expired? Has a wireless carrier forced you to pay for an entire extra month's service because you missed that one-day window? Let us know in the comments or file an online complaint form.