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  • Protecting Wireless Consumers: Google over Government

    In the latest salvo in the war against wireless, media activist group Free Press last week proclaimed that “carriers are using…inflated early termination fees to lock millions into long-term contacts — and customers want out.” It then urged for the FCC to intervene to stop the practice.

    This would be a mistake. There are plenty of reasons why termination fees make sense for consumers. More importantly, consumers who don’t like them have plenty of choices. In fact, only days after the folks at Free Press released their statement, Internet giant Google expanded those choices, announcing that it would offer a phone directly to consumers, which they can take to their provider of choice – with no need for a contract.

    Consumer contracts, and associated cancellation fees, are fairly common in many markets, providing benefits to consumers. In wireless markets, binding contracts allow providers to offer – and consumers to buy — phones that are either free or at a heavily reduced in price. The downside is the fee for terminating a contract.

    Arguing for regulation, Free Press cited a GAO report which found that “early termination fees stop 42 percent of consumers who want a new carrier from switching providers.” However, the whole point of such a fee is to create an incentive for customers to fulfill the contract which they had agreed to. This doesn’t mean consumers are getting a bad deal, in fact, according to that same report, 84% of users felt satisfied with their service.

    It is understandable that many people don’t like the fees, but consumers are not without alternatives. Customers of all major service providers can buy an unsubsidized phone and connect it without a contract. In fact 20% of consumers already pick an option that does not require fees to cancel. And Google’s entry promises to create another attractive option.

    Competition gives consumers a choice, sign a contract and get a discounted phone, or pay full price for a phone and be free of contractual limits. They get to decide. The market is working.

    Posted in Economics [slideshow_deploy]

    3 Responses to Protecting Wireless Consumers: Google over Government

    1. Roger S., Ma. says:

      Being what they are, markets always seek the most economical solutions to providing the goods desired by its participants. That at any given time this may not satisfy perfectly some number of individual wishes is no reason for government interference — which is likely to cause other individual wishes to go unsatisfied as the market adjusts to the government, while increasing overall costs to all participants.

      It's time for government to stop trying to get its mitts on every flourishing business it can. Just because somebody merely doesn't like what some market is providing is no justification for getting the force of government involved. — If you don't like something, buy elsewhere, or make your own. A better understanding of the difficulties and expenses involved can be all but guaranteed!

    2. Pingback: A Non-Government Solution. What!? | The LALA Blog

    3. Emily3264, Rainier, says:

      If the government would just get out of the micromanagement business and focus on proper regulation we'd all be in better shape. They should be reviewing the contracts that are sent out by businesses to consumers – especially financial businesses that take advantage of many people's lack of understanding of their own finances. Total cost, interest rates, and service fees should be clearly specified in the main body of a contract or website offering "special" intro offers. They shouldn't be allowed to bury the true costs in the fine print.

      This just happened to me with New York Life Insurance. They leave out key service fee information and bury it in a secondary document. I'm currently working with my State Insurance Commissioner on requiring ethical disclosure.

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