With Wireless Carriers, Breaking Up Is Still Hard to Do

Breaking up with your wireless provider just got a bit easier -- but as with the termination of any bad relationship, timing is everything.

Following a spate of announcements from Verizon, Sprint and T-Mobile earlier this year, AT&T officially began pro-rating its early termination fees on Sunday. According to the company, instead of paying one single flat fee of $175 to jump ship, you'll now be able to shave off $5 from that amount for every month completed of your one- or two-year contract.

"We have not yet provided specifics on our new approach," an AT&T spokesperson said on Tuesday, "but we remain committed to the idea that wireless customers who leave their contract early should not pay a flat early-termination fee."

Unfortunately, this new policy does not extend to those who signed up for a contract prior to May 25, 2008.

So why the sudden change of heart? According to most wireless analysts, this newfound flexibility on the part of AT&T and the rest of the industry is largely the result of a number of pending class action lawsuits, in several states, by customers who claim they were either misled or charged excessive penalty fees.

"If you take a look at what AT&T did, they basically matched Verizon's current policy," says Current Analysis analyst William Ho. "You can argue that this is carriers being proactive against pending legislative penalties and the coming open access environment, but to me, this is really about staying competitive. With everyone else agreeing to pro-rate their termination fees, AT&T didn't want to be seen as the bad guy."

Verizon, which currently faces a $1 billion suit related to its early termination fee policy, is actually in the midst of proposing two separate remedies to the FCC, Congress and various other consumer groups.

The first is similar to what all major U.S. carriers are already planning on doing: pro-rating their ETFs over the course of a given contract. The alternate option would have carriers agreeing not to charge any termination fee during the first month of a contract; after that, all bets would be off.

Theoretically, these half-measures would give carriers some degree of wiggle room when it comes to any pending and future ETF-related lawsuits.

For years, U.S. carriers didn't seem to mind the "bad guy" label and justified early cancellation fees based on the fact that the majority of customers still purchased subsidized handsets.

Many customers rightly assume the cheap phone they get in the deal is a part of entering into a one- or two-year contract with a given carrier, but subsequently forget that breaking that contract can mean parting with a significant chunk of change.

"In essence, it's the carrot-and-stick approach," says Ho, "where the carrot is the subsidy and the stick is the early termination fee."

Things are starting to change, albeit very slowly. Currently, the ongoing ETF legal battles are being waged at the state level, but the FCC announced last week it will be holding its own hearing in mid-June to decide whether the government should in fact take over jurisdiction of the fees -- the theory being that one national policy applicable to all wireless carriers would eliminate much of the confusion and lawsuits.

In the foreseeable future, you can bet on one thing: If there's a contract or a subsidy involved when you sign up with a new carrier, expect to get whacked with some manner of ETF should you decide to walk away early. The only difference is it might not hurt as much as it used to.