Hot Toys November 2009
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There is quite some activity in the cellphone space: Many big carriers are dropping their fees for certain plans. Especially the all-you-can-eat voice plan, that is now available for as little as $45 per month, down from as much as $130 just a few months ago, has created enough incentive for carriers to make their plans more attractive – which is very much welcome by single parents who depend on those unlimited voice and data plans. But if you are stuck in a 2-year plan, changing plans or switching carriers can be very expensive and result in early contract termination fees. Consumer Action has released helpful tips how to cut down the impact of those fees if you want to switch.
Let’s be clear: If you are in the middle of a contract term, switching will result in an early termination fee (ETF). In fact, knowing your fees is a good idea when you sign up for a contract just in case you need to switch or cancel down the road for whatever reason.
According to Consumer Action the current ETFs are:
- AT&T: $175 per phone line
- Sprint: $200 per phone line
- T-Mobile: $200 per phone line
- Verizon: Prorated so that it drops $5 per month, but recently doubled from $175-$350 per month for certain phones
Usually those ETFs are only in place when there is a contract, which is typically required when you get a subsidized (cheap) phone: You may still pay $200 for a fancy smartphone, but these phones cost the carrier up to $600, which means that the ETF is sort of a protection for the carrier that you just don’t pick up an expensive phone an run away. Some carriers allow you to buy an phone outright for considerably more money – an iPhone, for example, would then cost up to $599 then – and you are not locked into a contract which means you can drop the plan anytime without an ETF (in the case of many smartphones, you are tied to certain carriers anyway.)
However, there are some hidden and, in this writer’s view, policies that are downright deceptive and should be reviewed by lawmakers (if we really want to wait for that.) For example, with T-Mobile, changing a regular plan into a family plan, even if you do not purchase a subsidized phone and bring your own phone, will create a new 2-year plan and impose the ETF rule on every phone within the new 2 year plan. So, in this case the ETF is not so much a way to protect a carrier from excessive cellphone upfront cost, but it is about to discourage you to switch to another carrier.
Nevertheless, if you consider a switch, here is what Consumer Action recommends you should do:
- Determine if you are even in the ETF “penalty box.” Many consumers are poorly informed about whether or not they face a penalty for switching cell phone services. A March 2009 Opinion Research Center survey found that two out of five Americans (40 percent) do not know what penalty they would pay if they canceled their cell phone service. While this confusion extends to 60 percent of consumers aged 65 or older, it also includes 46 percent of those aged 45-54 and 49 percent of those aged 55-64. Not sure if you face an ETF? Get on the phone with your cell phone company and find out what penalty (if any) you would face for switching providers. If you’ve had your cell phone and current plan for two years or more, you can safely assume that you are no longer in the penalty box on ETFs.
- Do the math on your cell phone penalty. Don’t just take a penalty at face value if it is in the range of $150-$200. If you are now paying $90 a month for basic cell phone service and switch to a cheaper cell phone service – such as a prepaid plan offering $45 for unlimited minutes and texting – you can “pay off” a $150 penalty in just three months. After that point, you would be saving $45 a month compared to your current plan.
- If you are out of the penalty phase and want to stay out of it, avoid lured back into it by your cell phone provider. The ORC survey from March 2009 found that nearly half (48 percent) of cell phone consumers either were already are at the end of their penalty period (7 percent) or in its last 12 months (41 percent). Don’t be surprised if, as your ETF penalty period draws to a close, your cell phone provider offers a new phone or more minutes in order for you to start the ETF penalty period all over again!
- If you want to switch, keep an eye out for your cell provider changing the terms of the contract. Under certain circumstances, major changes by your cell provider to the terms of the contract you signed can be used as the basis for escaping early termination fees. If you are interested in switching cell phone providers and want to avoid an ETF, be on high alert for bill inserts, emails and phone calls that spell out new terms and ask for you to agree to them. Keep in mind that your cell phone provider doesn’t want you to use the contract term changes as a basis for switching, so this may all be buried in the fine print.
- For more adventurous consumers who are prepared to go farther to avoid a cell phone ETF penalty, it may make sense to explore a third-party matching service, such as Trade My Cellular, Cell Swapper and Cell Trade USA. These organizations charge up $20 to the person giving up their contract to find someone willing to assume the contract. If you explore this right, be prepared to pay up to $20 to get started and then possibly the first month of the new person’s basic cell service as an inducement to get them to take the contract off your hands. That is still going to be cheaper than paying $175 or more!
It is worth mentioning that the ETF period usually does not apply exactly when you are thinking about a phone upgrade at the same carrier. There is usually a grace period of two or three months – which means you can get that upgrade after 21 or 22 months and not just after 24.
