Watch out for the latest money-soaking cell-phone scheme
December 7, 2009 by Valerie HelmbreckPosted in: Communication, Compliance, Gadgets, Special Report, cell phone, smartphones
Smartphones are becoming the consumer gadget of preference, but there’s a new trend you should be aware of if you’re picking one for yourself or the users in your organization.
The latest money-soaking scheme of the smartphone provider: huge early termination fees.
That’s what Verizon’s started with its popular smartphone models.
Starting in mid-November, Verizon began charging nearly double the ETF on its “advanced devices,” which means its smartphones.
This is apparently designed to prevent customers from buying something like a BlackBerry Tour or Storm 2 (both advanced, new models of the intelligentsia of cell phones) from the carrier at the rock bottom promo price, then turning around and selling it for more than the termination fee — which used to run anywhere from $150-175 in the “olden days.”
The Verizon folks did make one concession to the ETF hike. For every month a customer hangs onto Verizon service, the $350 fee drops by $10.
So here’s the problem with their “generous” ETF reduction: Any consumer who signs up for two years of service would still have to pay $120 if they wanted out of their contract after 23 months.
Of course, the cell phone business has become the poster child for the “razor/razor blades” marketing scheme that many companies have been practicing for many years.
The ploy: You give away the razor and then charge a fortune for the blades. This means your revenue stream bubbles along into the future, while keeping one-time costs low to get folks to adopt your product.
So long as cell phone companies continue to make the bulk of their money off those usage contracts, we can expect them to do everything they can to keep folks tied to those agreements.
And doubling ETFs is just the latest ammo in the arsenal of weapons they’ll use.
I’d expect other carriers to follow suit shortly, unless the Federal Communications Commission steps in to block the new tactic. It may.
Some administrators at the FCC have already fired a shot over Verizon’s bow in the form of a letter asking some pointed questions about ETF hikes for smartphone users.
You can read the letter here. Verizon’s got two weeks to respond to the FCC’s questions, but don’t expect them to drop these big fees in the meantime. And look for other carriers to follow their lead.
After all, if a competitor is making money off a particular tactic, it’s unreasonable to expect the opposition to do less.
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December 8th, 2009 at 12:34 pm
ETF has been a milking cow for the wireless industry for years. The give away their phones to get customers hooked and trial periods, as far as I have experienced laps before you have a chance to either cancel or complain about service.
Canceling my iPhone plan with AT&T cost me $ 175 after 21 months. They don’t reduce cost as you go along. The price is fixed $175 no matter what. 23 and 1/2 month and you still have to pay the $ 175 ETF. At least Verizon counts it down to $ 120 after that time.
The whole wireless business is crooked and are extremely quick at charging for anything beyond above what your plan says. And those prices are out of this world. Just look at text messaging prices. The service cost them nothing but the price for each message you send brings them in big bucks.
December 8th, 2009 at 2:46 pm
Here’s an idea….let’s quit thinking we have to be in touch with everiything 24/7. Most of the conversations I overhear are not required anyway. Hooray for land llines thaat’s fast enough. turn in your cell….we are the problem. Let someone leave a message…..break the kids habit of texting……..
December 8th, 2009 at 2:48 pm
Buy an unlocked device. That’s what I did with my old phone. No contract so no cancellation fees. But make sure it’s compatible with your carrier.
December 8th, 2009 at 7:31 pm
If you don’t want to be subjected to a big penalty for switching carriers when and if you feel like it, go month to month with a pay as you go company. The big fees for going over your minutes or number of texts are clearly spelled out for you when you sign the contract.
I’ve got an idea… How about we read the fine print, take responsibility for the things we buy, and quit complaining about something we agreed to in the first place. No one is holding a gun to your head forcing you to buy or use a cell phone.
December 8th, 2009 at 11:13 pm
Well, if there’s a poster child country for “how capitalism doesn’t work when the corporations control the government,” we’re it.
Free-market is supposed to “let better goods & services push out inferior goods and services.”
How’s it working.
The US standardized on an inferior color broadcast TV format-NTSC.
The US NEVER standardized cell phone frequencies and access, leaving a maze of different, incompatible netoworks. SIM chips were supposed to let us change service providers easily, but the service providers rapidly found ways to ensre that that didn’t happen
We have the lowest tech cell phones (the iPhone was a yawn around the world–most Europeans and Asians had had better equipment and better pricing for a decade.)
Our car manufacturers have spent the past 3 decades taking a beating because they produce inferior products which cost more to purchase and run.
We get to pay monthly for “options” in phone service which consist of turning a bit on in a computer–things like voice mail, forwarding & such are charged as if they were operator provided instead of automated.
We have the worst public transit in the civilized world.
Having set up a TV system financed by advertising, we now have a system which charges you for access and has advertising.
Every single consumer electronics device has it’s own, incompatible, AC/DC converter–none of which are better than 50% efficient.
Automobiles have only standardized locations of a small handful of controls, and have not standardized how most of the controls work, thus making it a really pain to change manufacturer’s or models.
Our “free-market” capitalists are constantly at the public trough looking for a handout–which they all to frequently receive. How is demanding government aid a capitalist structure? If they don’t want a hand out, they want exemption from having to clean up one or another of the various messes they make of our air, land and water–which effectively forces the entire population to pay for their extra profit.
December 9th, 2009 at 8:43 am
Charles, you are absolutely correct on all points made. We keep on saying this is the greatest country in the world, but after having lived here since 1980 (moved from Norway. what a mistake) I have a hard time agreeing with that statement and here is why:
We have no government, only big money and lawyers running the show in DC
The school system is failing too many young students
Getting higher education is way to costly for most
There are way to many poor and homeless people living on the streets. In the “small town” I live in there are over 6000 without housing and many of them children going to school.
Over 40 mill are without health insurance and the ones that have one are paying out of their nose
Over 35 mill people does not have enough to live on and go starving every day
And on top of that, we are fighting 2 wars, we own the world 12 trillion dollars and are totally broke.
How can we possibly be THE GREATEST COUNTRY IN THE WORLD with all these problems?
December 9th, 2009 at 9:22 am
Simply we have got what we wanted. Anyone who remembers more then 8 years ago, a Palm type device would cost you about $400, guess what it still does. We the customer wanted cheaper devives. The cell companies pay maybe half of that, so basicly we are financing the phone over 2 years. A friend of mine bought a HP netbook laptop for $100.00 because she had to take the wireless card for 2 years, then complained she was paying $10 a month more then other people on that carrier a month. guess what 10 a month over 24 months is $240 plus the $100 she paid for it is $340. at the time she bought her netbook that was about what they cost. We need to be smarter shoppers, it amazes me that people make purchases such as this without doing the simple math. The Verizon ETF seems excessive, but we need to educate our selfs be better shoppers. Smarter shoppers get better deals
December 9th, 2009 at 3:28 pm
I don’t know about razors and razor blades but printer manufacturers have been doing this for years. Give the printer away cheap but charge ridiculous prices for ink cartridges. For what you pay for a couple of ink cartridges you can just about buy a new printer – but they have that scam figured out too. New printers come with only partially filled ink containers or laser printers with partially filled toner cartridges.
December 10th, 2009 at 1:27 pm
Although we are all talking to others more than ever, I am not convinced we communicate any better than we ever have!!
December 10th, 2009 at 1:42 pm
What’s the problem here? Consumers want cheaper devices; the wireless companies make up for it with extended contracts that you can’t break. Not any different than Burger Barn giving away double cheeseburgers for $1 but charging $2.50 for a soft drink.
It’s one thing if your phone is a lemon or your provider gives bad service, but I wonder how many people trying to break their contracts are doing so only because they’ve just GOTTA have the cool new device that just came out. Pathetic. Hey, folks, if your libido depends on your needing to be that cutting edge, forget the contract — buy the device at full price and pay for service on a monthly basis. Oh, wait, you think it’s a RIGHT to get the device cheap? Let me say Pathetic again.
December 10th, 2009 at 1:47 pm
Oh, by the way, the contract specifies the early termination fee. Yeah, it’s in fine print, but it’s there. Did you bother to read it and understand it before signing it? No, I guess it’s easier to complain that we need a law to protect stupid, ignorant, lazy people from themselves.
December 10th, 2009 at 4:23 pm
Gmyhre
It is called freedom that is what makes us the Greatest Country in the World. We not only live it we promote it. Do you know any other country that has spent so many of their citizens lives to promote and assist freedom in the world. Thats why we are great not because of the capitalism or the idiots running our country at the moment or in the past. And, by the way if it was a mistake to move from Norway – dont let the door hit you in the butt on your return to your old home. You are FREE to return to the Old country anytime you like.
December 11th, 2009 at 8:14 am
T.C. Says
T.C. Freedom does not feed me or make my life easier or better. As a matter of fact it costs me, you and this nation a ton of money, money that could have been spent on much better causes, and ruins many young lives and families forever, for what? To force our idea of freedom on nations that don’t care and never have cared for democracy and our way of thinking? Read and try to understand their history and you will realize that we are fighting an uphill battle that we cannot win.
December 20th, 2009 at 7:06 pm
Hi, I applaud your blog for informing people, very interesting article, keep up it coming
January 4th, 2010 at 2:35 pm
[...] Watch out for the latest money-soaking cell-phone scheme [...]
January 5th, 2010 at 3:50 pm
Hey TC wow actually freedom does feed you as the free farmer cans ell his food to you and not to the government which then can chooose who gets to eat it! Freedom also makes your life a lot easier go to your local prison and decide how you would provide for yourself or family if you were locked up. Have to say when you left Norway and came to America you probably lowered the IQ of both Norway and America !
June 17th, 2010 at 3:21 am
I actually saw LOLWrestlers too – that was sweet