Cell Phone Carriers May Not Fence in Users for Long

Unlock this cellphone!In a ham-and-eggs breakfast, the chicken is involved but the pig is committed. Forced commitment has been the hallmark of success in the cellular telephone industry. Wireless telephony carriers have had one of the lowest customer satisfaction scores by industry since the American Customer Satisfaction Index broke them out as a separate category in 2004. Companies have had two major ways to tie consumers to them: locked phones that would only work with their networks, and termination fees. But both are now under fire.

MetroPCS, a carrier with 4.4 million subscribers in various metropolitan markets, is hound dogging other carriers, offering to unlock CDMA phones for Verizon and Sprint subscribers. All the new user pays is a $30 activation fee, and the company will even ease that burden with a month of free service.

Called MetroFlash, the program is akin to the Subscriber Identity Module (SIM) card activation offered by GSM carriers, which allows customers to bring their own unlocked devices to the network. There are a few more hurdles Metro must overcome for each activation, though. Since CDMA phones don't use SIM cards, customers have to bring their phones into Metro stores or Metro-authorized dealers to have their numbers and devices reassigned to the MetroPCS CDMA network. Data services and SMS and MMS gateway addresses will also have to be reprogrammed. Any carrier-specific software loaded onto the phone would also need to be erased or deactivated. Applications like Verizon's V Cast service or the GPS navigation services offered by Sprint and Verizon would be rendered useless.
When one carrier helps potential subscribers jump ship, how long will it be before its competitors do the same? Oh, wait, that may already be happening:
San Antonio-based Houdinisoft, maker of the technology that helps MetroPCS unlock and reconfigure some 230 different phone models, is in talks with other service providers, particularly those in the prepaid wireless business, says Houdinisoft President Paul Posner. He declines to identify the potential customers. "If other people don't do it, [unlocking] might be a competitive differentiator," says [MetroPCS CFO Braxton] Carter.
That leaves most carriers that use long-term contracts (unlike MetroPCS) with early termination fees to lock people in. But the FCC has outlined potential new rules in that regard. Although the FCC has noted that the fees let carriers recoup some of the costs of subsidized handset prices, chairman Kevin Martin has publicly stated that this is also a consumer issue.
When a consumer ends a contract with wireless carrier, he is typically charged a fee ranging from $150 to $225. If you have multiple phones, you'll likely be charged multiple fees. That is a significant sum for a subscriber to pay who is dissatisfied with the quality of service. In practice, it can lock people into a service they really want to leave.

And consumers are concerned. In 2006 and 2007, we received over 3700 complaints about early termination fees. Too often consumers are surprised that the amount they owe on their first bill is not what they expected, only to then learn that their "trial" period already ended and cancellation will result in paying the early termination fee. It is essential that we examine ways to protect consumers and ensure that they understand the fees associated with the communications services.

In the statement, Martin mentioned five rules that the FCC is considering:
  1. The fee should be "reasonably related to the cost of the equipment the consumer receives."
  2. Fees should be pro-rated over the contract life.
  3. The length of service contracts should be reasonable.
  4. Consumers renewing a contract without getting new equipment should not face termination fees.
  5. Termination fees should not kick in until consumers have taken the phone home and received their first bills.
Adding new features may not keep the customers in thrall; 82 percent of Americans don't even use cell phone texting. Sounds like it may be time to boost those customer satisfaction numbers -- and the loyalty that could accompany them.

Cell phone image via Flickr user functoruser, CC 2.0

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