FCC Provides Insight into Changes in Early Termination Fees

Officials from the Federal Communication Commission recently provided guidance to carriers on early termination fees (ETFs). In other news, Clearwire Corp. officials said they planned on having 30 million customers by 2017, while Starbucks Corp. settled a lawsuit on wireless network service between AT&T, Inc. and T-Mobile USA, Inc.

Focal Points:

• The Chairman of the FCC recently gave additional insight into how he plans to regulate the early termination fees that carriers charge for leaving a service before the end of a contract. He said that he believed the Federal Government, as opposed to the States, should be setting the rules for these fees. He believes these fees should be based on the cost of the phone purchased, so a cheaper phone would be entitled to a lower ETF. Additionally, he believes contracts should be for a reasonable time length and that not all contracts should have ETFs. Finally, he believes customers should have a 30 day grace period to review their first bill before being charged any termination fees.
• Executives from the "new" Clearwire recently told the investment community that they planned on having 30 million customers and over $17 billion in revenue by 2017. Officials said they would achieve this objective by offering a combination of fixed and mobile data and voice services. The new Clearwire is a joint venture between Sprint Nextel and the existing Clearwire. The alliance also has $3.2 billion financing from Bright House Networks, Comcast Corp., Google, Inc., Intel Corp., Time Warner Cable, Inc., and Trilogy Equity Partners. Experton Group believes that these projections cannot be reliable, given the long time horizon and the tremendous uncertainty in how the economy will move in the next decade.
• Officials from Starbucks recently announced that they had reached a settlement with T-Mobile after the carrier accused Starbucks of breach of contract by allowing AT&T to provide Starbucks customers free Wi-Fi access in its cafes. AT&T's recent promotion offers customers two free hours of Wi-Fi in Starbucks stores, for those customers who purchase a Starbucks Reward card with at least $5 credit. In addition, the card must be used at least once a month. T-Mobile has been the exclusive provider of paid Wi-Fi in Starbucks cafes for the last seven years. However, Starbucks is not in the process of transitioning its stores to AT&T.

Experton Group believes the FCC is likely to get its way in pushing for Federal control of wireless billing issues. As companies, and indeed the nation, moves towards nationwide services, the argument is strong from an interstate commerce perspective to have a central policy for issues such as wireless services and fees. Carriers can be expected to fight this if they feel it will force them to charge lower fees. While WiMAX will certainly start growing, there is too much uncertainty to count on any long-term predictions. However, IT executives can confidently expect it will grow and can start planning for adoption within the next two years.