FCC investigating verizon's ETF increase

bigjnyc

macrumors 603
Original poster
Apr 10, 2008
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http://www.electronista.com/articles/09/12/04/fcc.asks.verizon.to.explain.move/

I did a search and didnt find any discussion on this investigation. Why would verizon jack up the ETF for smartphone users by double? $350 seems like an astronomical ETF.... seems to me like an attempt to keep customers from being swayed by the iPhone, even though Verizon claims that it's not a threat but then turns around and launches a whole ad campaign attacking it and and its network AT&T. just more of Verizon's hyjinx when it comes to hosing their customers with fees and hidden charges.
 

Roessnakhan

macrumors 68040
Sep 16, 2007
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ABQ
I think the ETF is valid in some regards. An ETF is the price you pay to break a contract, if you agreed to all their terms and signed a contract you should have to pay a price to break it. If you just wanted to go to the carrier, get a device, then drop said carrier, then you should have to pay that much. I'm actually surprised AT&T hasn't done it yet with all the people getting iPhones and switching carriers.
 

GoCubsGo

macrumors Nehalem
Feb 19, 2005
35,743
141
The increase is two fold I believe.
They will say it has to do with the fact that there are deep discounts on their premium phones and they want to encourage people to stay with them rather than buy the phone at 50% off (at least) then resell and still make a profit even after the ETF. However, I believe this is in response to their customer base dwindling ever so slightly due to the overall popularity of the iPhone.

It is my understanding that the Droid is a great phone and really catches the eyes of some iPhone owners who figured they could live with the Droid and would welcome better service. I think better service is subject to your area but I know I believe Verizon to be better.

Is either reason right? Yes, both are actually. It is really high time that people start understanding what a contract is and the importance of not breaking it. If you have a termination clause then let it be beneficial to both. IE: you get away from Verizon but they get some cash off you. I believe, however, that the ETF should never exceed the discount you received on the phone. This way it is a wash or at the most Verizon gains a small profit as retail price on a phone is not their price.

If $350 + the price paid for the phone exceeds what you would normally pay outside of contract then I do believe Verizon is wrong. You cannot profit or should not profit on a contract being broken on cell service. I hope that the FCC at least makes sure that won't happen.
 

bigjnyc

macrumors 603
Original poster
Apr 10, 2008
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If $350 + the price paid for the phone exceeds what you would normally pay outside of contract then I do believe Verizon is wrong. You cannot profit or should not profit on a contract being broken on cell service. I hope that the FCC at least makes sure that won't happen.
Using that logic I really think ETFs should be structured in a way that the amount drops as your contract termination date gets closer. So say the phone costs $600 and you pay $300, the ETF should start out at $300 but then in 4 months maybe it should drop to $250 and so on and so on..... until its $0 at the end of your commitment. I heard rumblings about this possibly being implemented by some wireless carriers a few years ago but I guess it never happened.
 

Aurial

macrumors 6502
Sep 13, 2008
285
0
You guys don't know how lucky you've got it.

Here in the UK if you want to cancel your contract you have to pay the whole remainder of your line rental. If you've only just taken out your contract then you'll have to pay £35 x 18 months = £630 or $1037.23 (assuming the iPhone 35 tariff, which to be honest there's no point going for a lesser tariff).
 

Roessnakhan

macrumors 68040
Sep 16, 2007
3,518
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Using that logic I really think ETFs should be structured in a way that the amount drops as your contract termination date gets closer. So say the phone costs $600 and you pay $300, the ETF should start out at $300 but then in 4 months maybe it should drop to $250 and so on and so on..... until its $0 at the end of your commitment. I heard rumblings about this possibly being implemented by some wireless carriers a few years ago but I guess it never happened.
AT&T, Sprint, Verizon, and T-Mobile all have prorated ETFs.
 

GoCubsGo

macrumors Nehalem
Feb 19, 2005
35,743
141
Using that logic I really think ETFs should be structured in a way that the amount drops as your contract termination date gets closer. So say the phone costs $600 and you pay $300, the ETF should start out at $300 but then in 4 months maybe it should drop to $250 and so on and so on..... until its $0 at the end of your commitment. I heard rumblings about this possibly being implemented by some wireless carriers a few years ago but I guess it never happened.
I agree with that logic and that too should be part of it. I think paying out a contract is a very logical and rather common option.
 

abijnk

macrumors 68040
Oct 15, 2007
3,286
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Los Angeles, CA
My biggest problem with ETFs is that there is no flip-side...

The wireless company (be it Verizon or whoever) subsidizes a phone with the understanding that they will make that money back over the life of the contract. They then establish an ETF to cover any potential loss from that (supposedly). That's fine. It makes sense.

That is, it makes sense until you consider what happens when you buy a phone at full price and don't sign a contract... In this case the carrier isn't losing any money on a phone subsidy since the customer is buying the phone outright, and yet they still charge the exact same price as they do for customers who receive a subsidized phone. :confused: Where is the balance?
 

tritonj

macrumors 6502a
Jun 12, 2008
704
0
My biggest problem with ETFs is that there is no flip-side...

The wireless company (be it Verizon or whoever) subsidizes a phone with the understanding that they will make that money back over the life of the contract. They then establish an ETF to cover any potential loss from that (supposedly). That's fine. It makes sense.

That is, it makes sense until you consider what happens when you buy a phone at full price and don't sign a contract... In this case the carrier isn't losing any money on a phone subsidy since the customer is buying the phone outright, and yet they still charge the exact same price as they do for customers who receive a subsidized phone. :confused: Where is the balance?
not sure I follow since if you don't sign a contract you aren't subject to an ETF
 

anjinha

macrumors 604
Oct 21, 2006
7,271
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San Francisco, CA
not sure I follow since if you don't sign a contract you aren't subject to an ETF
When you buy a subsidized phone it's like you made a downpayment on a phone and then you pay the rest back through the length of your contract. When you buy a phone full price you don't owe the carrier nothing, but your contract price is the same as someone who bought a subsidized phone.
 

abijnk

macrumors 68040
Oct 15, 2007
3,286
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Los Angeles, CA
not sure I follow since if you don't sign a contract you aren't subject to an ETF
Yes, however you also don't get a discount on your month-to-month bill. If recouping subsidies is figured in to the monthly bill (as is suggested by the argument that companies make back what they spend in subsidies) then is should stand that if you don't get a subsidy then your monthly bill should be lowered accordingly.
 

aristobrat

macrumors G5
Oct 14, 2005
12,247
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they want to encourage people to stay with them rather than buy the phone at 50% off (at least) then resell and still make a profit even after the ETF.
That's what I thought, too.

Specifically, they were having problems with people "adding a line" to their account to take advantage of the "Buy One, Get One Free" smartphone promos. With an ETF of $175, people could cancel the newly added line, pay the ETF + prorated bill, and still resell the phone for a net profit.

Yes, however you also don't get a discount on your month-to-month bill. If recouping subsidies is figured in to the monthly bill (as is suggested by the argument that companies make back what they spend in subsidies) then is should stand that if you don't get a subsidy then your monthly bill should be lowered accordingly.
I think T-Mobile's doing that. Their "Even More Plus" plans seem to factor in that you don't get a subsidy on your phone.
 

tritonj

macrumors 6502a
Jun 12, 2008
704
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Yes, however you also don't get a discount on your month-to-month bill. If recouping subsidies is figured in to the monthly bill (as is suggested by the argument that companies make back what they spend in subsidies) then is should stand that if you don't get a subsidy then your monthly bill should be lowered accordingly.
where did you get the idea that your monthly service bill has anything to do with recouping money? there isn't anything extra built into that. the monthly bill is just that, a monthly bill for the service you pay for. signing a contract is meant to ensure you stay with a company long enough so that the profit from those monthly payments can offset the subsidy, but it isn't something setup specifically to recoup money.

When you buy a subsidized phone it's like you made a downpayment on a phone and then you pay the rest back through the length of your contract. When you buy a phone full price you don't owe the carrier nothing, but your contract price is the same as someone who bought a subsidized phone.
you aren't required to sign a contract if you buy a phone at full price, so i'm not sure where you are getting this contract price stuff. if you still sign a contract after not taking a subsidy or bringing in your own phone, then that is your fault, has nothing to do with the carrier. you are automatically month to month
 

TheSpaz

macrumors 604
Jun 20, 2005
7,032
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I think it would be funny to bring your own contract to Verizon that has your conditions in it and make them sign it before they accept you as their customer! Haha!
 

chris975d

macrumors 68000
Sep 21, 2008
1,795
54
Georgia, USA
My biggest problem with ETFs is that there is no flip-side...

The wireless company (be it Verizon or whoever) subsidizes a phone with the understanding that they will make that money back over the life of the contract. They then establish an ETF to cover any potential loss from that (supposedly). That's fine. It makes sense.

That is, it makes sense until you consider what happens when you buy a phone at full price and don't sign a contract... In this case the carrier isn't losing any money on a phone subsidy since the customer is buying the phone outright, and yet they still charge the exact same price as they do for customers who receive a subsidized phone. :confused: Where is the balance?
This is one thing that I like about T-Mobile's new "Even More Plus" plans. If you buy your handset at full price or bring your own, they do give you a hugely discounted rate plan (for instance, the one I am trying out is $59/month for 500 minutes, unlimited data and unlimited text). These plans are basically subtracting out the per month price that other providers work into your monthly bill to cover the subsidy they give you on the handset. And there's no contract on this and can be cancelled at any time. I wish AT&T and Verizon would offer similar plans, as T-Mobile's 3G service isn't up to par (coverage wise, speed wise it's faster than both At&t and Verizon). But they are rapidly expanding it.
 

anjinha

macrumors 604
Oct 21, 2006
7,271
62
San Francisco, CA
you aren't required to sign a contract if you buy a phone at full price, so i'm not sure where you are getting this contract price stuff. if you still sign a contract after not taking a subsidy or bringing in your own phone, then that is your fault, has nothing to do with the carrier. you are automatically month to month
Imagine you buy a subsidized iPhone at $200 and that you pay $100 a month for your contract. Part of that $100 goes to pay for the phone, since its full price is like $600. But if you buy an iPhone full price you will still pay $100 a month for service, even though you already payed full price for your iPhone. The only difference is that you can leave at any time.
 

abijnk

macrumors 68040
Oct 15, 2007
3,286
4
Los Angeles, CA
where did you get the idea that your monthly service bill has anything to do with recouping money? there isn't anything extra built into that. the monthly bill is just that, a monthly bill for the service you pay for. signing a contract is meant to ensure you stay with a company long enough so that the profit from those monthly payments can offset the subsidy, but it isn't something setup specifically to recoup money.
But that's exactly my point. You are pointing out what I have already surmised: that their profit margins are exorbitant and that they aren't in fact losing any money on subsidies. It should be a two-way street.
 

acfusion29

macrumors 68040
Nov 8, 2007
3,125
1
Toronto
SMH... again you guys complaining.

Canada is ****ed.

Fido/Rogers: $20 per MONTH for the remainder of your contract (which is a max 3 years as opposed to 2), for up to $400. An additional $100 applies for data...........

Telus/Bell: $20 per month with no maximum (unless they changed it), so your contract termination can be as high as $720... Additional charges apply for data I believe.

Cry my a river, seriously.
 

tritonj

macrumors 6502a
Jun 12, 2008
704
0
But that's exactly my point. You are pointing out what I have already surmised: that their profit margins are exorbitant and that they aren't in fact losing any money on subsidies. It should be a two-way street.
the money doesn't come or go to the same accounting buckets, they are all completely separate, so what you're proposing makes no sense

yes the profit margin is huge, but what does that have to do with a subsidized phone? the pricing model has never taken that into account even before the days of subsidies. of course they aren't losing money on subsidies, if they were they would be out of business. but that is irrelevant.

unless you want to make an argument that cell service rates are just too high and in that case it applies to all customers not just those who buy unsubsidized. the subsidy plays no part in it at all

Imagine you buy a subsidized iPhone at $200 and that you pay $100 a month for your contract. Part of that $100 goes to pay for the phone, since its full price is like $600. But if you buy an iPhone full price you will still pay $100 a month for service, even though you already payed full price for your iPhone. The only difference is that you can leave at any time.
i don't see the argument here, you pay $200 and agree to stay with the service for 2 years. or you pay $600 and go month to month. the cost of the service is irrelevant. take the better deal and sign up for 2 years

the confusion is that you seem to think there is a correlation between the 2 and there isn't and there never was, and honestly it makes no sense to have a correlation. you are paying for service not a product. the product is only there to entice you to buy into a service. the product itself is irrrelevant
 

Night Spring

macrumors G5
Jul 17, 2008
13,064
5,084
the confusion is that you seem to think there is a correlation between the 2 and there isn't and there never was, and honestly it makes no sense to have a correlation. you are paying for service not a product. the product is only there to entice you to buy into a service. the product itself is irrrelevant
But if there is no correlation, why did a federal judge rule that cell phone companies must prorate the ETF over the term of the contract? I think that's where the idea that you are paying off the subsidy over the length of your contract comes from. And once you start thinking about it that way, then why shouldn't your monthly service fee decrease once you've paid off your subsidy, or you didn't have a subsidized phone to begin with?
 

kdarling

macrumors P6
No matter how you word it, the pricing model must take subsidies into account.

Carriers can't just give away phones. They have to build in enough monthly profit to guarantee that they can pay themselves back for loaning out the money in the first place.

For example, AT&T's stock took a drop last year when they revealed that they had paid out something like a half billion dollars in iPhone subsidies, and that it would take about 18 months from the start of each customer's contract, to pay their share back.
 

goosnarrggh

macrumors 68000
May 16, 2006
1,570
2
SMH... again you guys complaining.

Canada is ****ed.

Fido/Rogers: $20 per MONTH for the remainder of your contract (which is a max 3 years as opposed to 2), for up to $400. An additional $100 applies for data...........

Telus/Bell: $20 per month with no maximum (unless they changed it), so your contract termination can be as high as $720... Additional charges apply for data I believe.

Cry my a river, seriously.
What's more, the Rogers ECF has both a maximum ($400 voice, $100 data) and a minimum ($100 voice, $25 data).

So, even though the ECF is prorated at a rate of $20 for voice and $5 for data per month remaining in your contract, early cancellation of a voice+data plan will always cost you a minimum of $125, even if you've only got 5, 4, 3, 2, or 1 months left in your contract.
 

tritonj

macrumors 6502a
Jun 12, 2008
704
0
No matter how you word it, the pricing model must take subsidies into account.

Carriers can't just give away phones. They have to build in enough monthly profit to guarantee that they can pay themselves back for loaning out the money in the first place.

For example, AT&T's stock took a drop last year when they revealed that they had paid out something like a half billion dollars in iPhone subsidies, and that it would take about 18 months from the start of each customer's contract, to pay their share back.
of course carriers can't just give away phones, but the subsidy is not related to the monthly bill. it is not a function of the bill. like i said before the subsidy is the incentive to get you into the door so you sign up with their service vs. another carrier's. all they want is to get you into the door and sign up for the service, which is what the business is. they are willing to take a loss on a phone if it means they can hook you into service. the phone is just a red herring. if you decline the subsidy then all the better for the carrier. they honestly could care less as long as you are paying them every month

the price of att stock last year that is a market overreaction and honestly doesn't prove anything, other than people overreact to unexpected news


But if there is no correlation, why did a federal judge rule that cell phone companies must prorate the ETF over the term of the contract? I think that's where the idea that you are paying off the subsidy over the length of your contract comes from. And once you start thinking about it that way, then why shouldn't your monthly service fee decrease once you've paid off your subsidy, or you didn't have a subsidized phone to begin with?
the ETF related to the contract not your monthly bill. that is why the judge made that ruling. it has nothing to do with the monthly amount of a bill. the purpose of the ETF is to discourage you from breaking the contract, the judge essentiallly was saying the ETF should be a function of the time remaining on a contract. again, nothing to do with a monthly bill. the bill can be for $1.00 or $100.00, it is irrelevant. the judgement had to do with length of contracts