Senator Amy Klobuchar (D-MN) is once again proving that she has no understanding of either the wireless phone industry, the rationale behind contract law, or basic economics. Verizon Wireless announced last week that it was changing its early contract-termination fee for smartphone customers from a flat $175 to a pro-rated $350 that decreases $10 for every month that contract is in effect. Sen. Klobuchar sent complaints to both FCC Chair Julius Genachowski and Verizon CEO Lowell McAdam. From her letter:
I remain concerned that ETFs – especially at these high prices – unfairly penalize consumers, bear little to no relationship to the cost of the handset device, and are anti-consumer and anti-competitive. In fact, Verizon Wireless’ decision underscores the need for Congress to act and to pass the Cell Phone Consumer Empowerment Act.
Sen. Klobuchar – a vocal critic of the wireless industry – obviously doesn’t understand that wireless carriers subsidize the cost of handsets for customers in exchange for a fixed-duration service contract. $500 upfront for an internet-capable handset is prohibitively expensive for most consumers, and so the popular business model has been below-cost phones + two-year (give-or-take) contracts. No wireless company could stay in business offering subsidized phones without requiring customers to sign service contracts. Moreover, having a brand new shiny gadget – near or below cost – is neither a right nor an entitlement for any consumer. Verizon’s response stated that if a customer absolutely cannot wait two years to get a new high-tech cell phone, then they have the option of going contract-free and upgrading – at full retail price – whenever they desire.
The government should not be in the business of regulating service charges and contract fees. A clever commenter in the Star Tribune article (cited above) exemplifies the madness of Sen. Klobuchar’s complaint best: “I got charged four bucks for a movie late fee the other day. I believe that fee unfairly penalized me and bears little relationship to the price of the movie.”