Escaping cell phone early termination fees

by on September 11, 2009 · 3 comments

Did you know you can escape the early termination fee in your wireless contract simply by getting someone else to take over the contract? I discovered this little gem recently while reading the Federal Communications Commission’s 2008 report on competition in the wireless industry , released earlier this year (mentioned in paragraph 186, if you’re curious).

Cell phone companies charge early termination fees of up to $200. They charge these fees because they usually sell phones at subsidized prices and then get reimbursed over the life of the contract via the monthly fee. If someone else takes over my contract, the company still gets its money, so they’re OK with the practice of transferring the contract to someone else.

Consumer writers such as David Wood and Patrick at explain how to transfer your contract to someone else.  Web sites  match up people who want to get out of their contracts with people who want to take over these contracts.  Some web sites offer to put parties in touch with each other for free.  Others charge $20 — far below the typical early termination fee. 

Score another victory for wily entrepreneurs who invented a win-win solution that benefits consumers and wireless phone companies as well. The Federal Communications Commission report cites 2006 and 2007 Wall Street Journal articles on this, so it’s not exactly a secret.  (I was unaware of it until now only because my wife and I use 5 year old cell phones, so we’ve been on a month-to-month wireless contract for years and have never had to look for a way around the early termination fee.) 

But for the past several years, federal legislators have been pushing wireless companies to prorate their early termination fees, supposedly because consumers have no choice but to pay the fee if they want to get out of a contract before it concludes.  In October 2007, I testified before the Senate Committee on Commerce, Science, and Transportion on a piece of legislation called the “Cell Phone Consumer Empowerment Act.”  The bill included a requirement that wireless companies prorate their early termination fees.  Apparently to head off the legislation or FCC regulation, the day before the hearing, AT&T announced it would follow Verizon’s lead and prorate its early termination fees; other major carriers followed suit. Sen. Amy Klobuchar (D-MN), sponsor of the legislation, took credit for the change, thanking AT&T for beginning the fee prorationing on her birthday.

When wireless companies prorate fees, they usually reduce them by $5 per month. Trading my contract, on the other hand, lets me escape the fee altogether.  So who got me a better deal — the federal government, or a pack of entrepreneurs I’ve never met?

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