Voice of Objectivity is an ongoing column meant to temper the tendency of the Techcited to run away with the most exciting or controversial ideas in technology’s near future. The opinions presented here do not necessarily represent the views of Techcitement or this writer. Someone’s got to keep a cool head around here. I guess I’ll just have to pretend it’s me.
Anyone who has tried to escape
a cellphone contract is familiar with the dreaded Early Termination Fee (ETF). ETFs are the price we pay to get those huge discounts on new cellphones, but for those of us looking to change service providers mid-contract, that price gets awfully steep. ETFs as high as $350 are common for modern smartphones. So, why do cellular carriers get to charge us these outrageous fees to not use their service? Turns out the reason is pretty simple: we owe them their money back.
These ETFs aren’t a random charge to force you to keep paying a particular company long past the time you’d want to leave. We get a significant discount, in some cases by an even greater amount than the ETF, for buying our new phones on contract. An off-contract iPhone 4 costs $649. That’s the purchase price, plus the ETF, plus another $100 (a bit more on AT&T). This is a pretty good deal, even if you break your contract immediately.
In exchange for getting us the devices we want at prices within our reach, cellular providers expect to make that money back, plus a profit, in the two years that we use their service. That’s not an unreasonable expectation given how much money they put down for us up front. Imagine what would have happened to AT&T when the Verizon iPhone was released if their most lucrative customers could leave en mass for nothing more than the cost of a new phone. Every one of those discounted purchases would represent a huge loss on AT&T’s balance sheet. And who wouldn’t buy a Verizon Droid 2 Global on the cheap if they were about to move to Europe? It’s a risk these companies cannot afford to take.
Now, obviously, ETFs aren’t popular with customers, especially those who actually run into the need to pay them. Cellular carriers are listening to customer complaints on these issues. When smartphones started becoming more common in the post-iPhone era, ETFs started to rise dramatically in response. They also got a new twist. The longer you’ve been in your contract, the lower the ETF, generally by $10 a month. That gives carriers a chance to earn back their investment and give consumers a viable way out when they need it, especially late in a contract when consumers are most likely to want to leave anyway (ever changed your mind about a carrier just a month or two after signing your contract?).
The ETF situation feels like a mess for people who need out of their contracts early, but for most consumers, we see a real benefit by signing those two-year agreements. Do we really want to see phone prices jump to the $600 range, on the off chance that we might need to leave early? In this era of economic crisis, let’s take our discounts where we can get them.
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