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Nov. 9, 2009

In a bold and totally unexpected move today, Verizon Wireless said that beginning next Sunday, it is doubling to $350 its early contract penalty fee.

James Gerace, a spokesman for Verizon Wireless, said the penalties are for subscribers in one- and two-year contracts on an advanced device and that those fees will be pro-rated $10 a month.

This means that if a wireless customer made it halfway through his two-year contract, the $350 penalty will be reduced $120 to $230-- still a hefty penalty by any standard.

Verizon's decision could revive previous ongoing debates about early termination fees, the penalties wireless service providers usually charge users for leaving contracts early.

Various consumer groups have pushed for new legislation to end such penalties or at least set minimum rules for the practice. The problem appears to have since dimished somewhat, as major wireless providers decided a few months ago to pro-rate fees based on the specific length of the contract.

Gerace added that Verizon decided to raise its cancellation fees because its highest-end phones and small wireless laptops are getting increasingly more expensive. The company subsidizes the cost of its handsets to make their prices look more competitive to consumers.

For example, Verizon Wireless is set to release its new Droid handset for $199 with a two-year contract. The phone is meant to compete headon with Apple's extremely popular iPhone, which is sold exclusively by AT&T.

For the past year now, ETFs (early termination fees) in the wireless industry have been very unpopular and the subject of many debates.

However, wireless providers say they have to recoup the money they are loosing while selling smartphones and other mobile handsets at a loss in order to make their pricing look more attractive to wireless customers.

It will be interesting to see if other wireless operators soon jack up their ETFs in an effort to cushion the blow on their balance sheets as well.

So far, Verizon Wireless is the only U.S. company to have doubled its ETFs.

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Source: Verizon Wireless.