Hear Us Now Blog

The Next Big Thing in Broadband: Early Termination Penalties Posted by frayam at 04/09/07 12:18 PM

Broadband Internet providers are increasingly imposing early termination fees to keep their customers from straying away for a better deal somewhere else.

(Interested in what your broadband provider is doing on early termination penalties? Click here.)

Such fees have been a routine part wireless phone contracts for years, but only recently have they begun to show up in the broadband business. Typically, the fees are included in the fine print of long-term contracts of a year or more. Many of the low-priced promotional offers offered by the companies require customers to sign such long-term contracts.

A survey of the country's top broadband providers by www.hearusnow.org shows that many are now including early termination fees in their contracts, with penalties of $200 or higher for consumers. Are you as frustrated? Do something about it! Tell the FCC to stop broadband companies from charging early termination fees!

The widespread adoption of early termination fees in the broadband business should worry consumers, according to Jeannine Kenney, senior policy analyst at Consumers Union.

"Cancellation penalties are anti-competitive and deprive consumers of the benefits of competition in the markets where there is more than one broadband provider," says Kenney. "The justifications for them are suspect. Once enticing consumers to sign up, broadband providers should rely on quality and service to build customer loyalty, not onerous contract terms that hold consumers hostage."

Like wireless phone companies, broadband providers who have started including early termination fees and requiring long term contracts for promotional offers say they are justified. That's because consumers are usually getting a break on monthly rates, as well as free or discounted installation and equipment, such as modems.

"Basically, we are charging the (early termination) fee to regain what we have been giving the customer for free," says Bobbi Henson, director of Media Relations at Verizon. "Customers who sign a (high-speed Internet) contract with us get free installation and sometimes free equipment. They also save $2-$8 on their monthly rate."

Many broadband providers offer customers promotional discounts for buying a bundle of services such as high-speed Internet, phone and television. Some don't require customers to sign a long-term contract, but any discount typically goes away if a consumer cancels any one of the services in the bundle. In addition, the discounts typically are only in effect for a short period of time, some for only three months or so.

With providers offering so many different pricing plans and constantly changing promotional offers, it is difficult to determine if consumers actually save any money by selecting a service with an early termination fee. In some cases, the promotional discounts for long-term contracts with early termination fees are substantial. In other cases, there is virtually no difference in the rates.

For the companies, the fees help limit so-called "customer churn." In the wireless phone business, the combination of long term contracts and hefty early termination fees have been devastatingly effective in keeping customers from switching providers.

In our annual cell phone survey, Consumers Union found that nearly half of all cell phone customers who were considering switching carriers were deterred from doing so by the early termination penalty. That effectively means wireless phone companies don't have to offer superior networks or service to keep their customers loyal; the penalties do the work for them.

It should be noted that in the wireless phone business those penalties are much more ubiquitous and typically range from $150 to $240 per line. That means consumers who have a family plan with four numbers could be forced to pay upwards of $800 to get out of their contract.

Moving to a different area is another trouble spot for consumers when it comes to broadband providers and early termination fees. There is a good chance a broadband provider will not offer service in the community to which the consumer is moving. Some contracts stipulate that the early termination fee will be waived under such circumstances, but some don't make such allowances.

With providers saying they are charging early termination fees in most cases to make up for lost revenues over a set period of time from lower rates and free or discounted equipment, it would seem to make sense that the penalties would be pro-rated. Logically, any such losses incurred by the provider would be much lower for a customer who cancelled service after 10 or 11 months under an annual contract than a customer who cancelled after only a month or two.

None of the providers surveyed by www.hearusnow.org offered pro-rated early termination fees.

While the www.hearusnow.org survey was focused on the largest broadband providers, it appears that smaller providers are also adopting early termination fees – in some cases with even stiffer penalties and restrictions.

Kirkland, WA-based Clearwire, for example, imposes a early termination fees ranging from $180 to $220 for customers who drop its wireless broadband service before the end of their contracts. (You can view Clearwire's terms and conditions by clicking here.)

Interestingly, Clearwire does pro-rate its $220 early termination fee, knocking off $10 a month for each month the customer has service. The pro-rating would only reduce the fee by $110 at the most, however, meaning even a customer canceling in the final month of the contract would still owe Clearwire $110 in early termination fees.

What We Found

Here is a quick summary of what www.hearusnow.org has learned about the early termination fee policies of some the country's largest broadband providers. (This information was obtained through telephone interviews with the companies in late March 2007. While we have strived to make sure this information is as up-to-date and accurate as possible, promotional offers and pricing change frequently. It should be noted that we only surveyed the largest broadband providers and did not include hundreds of smaller broadband providers.)

AT&T (Including SBC and BellSouth)

* Charges a $99 early termination fee.
* The price of broadband service for month-to-month and annual contract customers is the same, but those who sign up for a one-year get one month of broadband service free.
* In many parts of the country customers can get a bundle of broadband, phone and television for $99 per month. The price goes up if any of the services are dropped within the term of the contract.

Cablevision

* No early termination fee.
* Customers can get a bundle of broadband, phone and television at a discount rate, but a contract is required. The price goes up if any of the services are dropped within the term of the contract.

Charter

Comcast

* No early termination fee.
* In many parts of the country customers can get a bundle of broadband, phone and television for $99 per month. The price goes up if any of the services are dropped within the term of the contract.

Earthlink

* Charges a $149 early termination fee on a one-year contract for DSL service.
* Offers a bundle of high-speed DSL and phone service.

Qwest

* Charges a $200 early termination fee on a two-year contract for its high speed Internet service.
* Rates are the same for month-to-month and two year contracts, but customers who sign up for two-year contract will not be subject to future price increases for as long as keep broadband service with Qwest.

Time Warner Cable

* No early termination fee.
* Offers various bundles of broadband, phone and television services.

Verizon

* Charges early termination fee of $69 for its FiOS fiber optic broadband service and $79 for its DSL high-speed internet service. Service can be cancelled within first month without having to pay early termination fee.
* Rate for FiOS is about $5 less per month under annual contract. Rate for DSL is $2-$8 less per month under annual contract.
* Offers various bundles of broadband, phone and television services.

comments (62)

Comments

1 Posted by jay bee at 04/25/07 02:28 PM

I agree Russell, and on top of that,the internet should be open and accessable to all... rich or poor.

2 Posted by Truman Trekell at 04/26/07 01:12 PM

We agree on legislation making it illegal to charge early termination fees.

How about going after the mobile phone carrier
market and their early termination fees too.

While you're at it, why not attack the imperious
congressional approved marriage penalties in taxes and the income tax on social security income. Congress approved taxation of social security income about 20 years ago. This is unreasonable to be taxed on your income before
retirement and then under certain unreasonable circumstances to again tax income from social
security. HOW SECURE IS THAT ?

3 Posted by Mike at 04/26/07 03:00 PM

In Oklahoma we have Cox for cable, Internet and phone. We're saving big money with their service, and there are no contracts! HOORAY!

4 Posted by Chris at 04/26/07 03:33 PM

The above article states that Qwest rates are the same for month-to-month and two year contracts. Actually (at least in my case), monthly rates are $6 more expensive than the contract price.

5 Posted by jrm at 04/26/07 03:45 PM

$99 for At&t? Not bad! When they were SWB it was $149 bare minimum, I think it was as high as $249 at one time. Once I know the service is solid and the deal is good I am not going anywhere anyway. Plus, now they are auto renewing for the same or better rates on month to month basis! Nor more jumping through hoops just to keep a decent rate for DSL. It used to take two days or more of negotiating to keep the rate I had! If they offered a better rate locked in at a $99 cancel fee I would jump on it.

6 Posted by Pam in Sacto at 04/26/07 06:17 PM

Here is advice from an acquaintance who is also an attorney specializing in contract law - - Don't forget that in a contract, both parties have a responsibility toward that agreement. While the company might impose early termination penalties, they likewise are obligated to provide the services contracted for. If you're not receiving those services in the manner or quality that was promised (and now you're prompted to look for another company who will), the provider likewise has not held up their end of the contract and one might be able to get out of paying early termination fees based on lack of the provider meeting the service obligation. Keep a written record of dropped calls, poor customer service, etc. (dates, times, names), to protect yourself - it might help you get out of that contract.

7 Posted by Robert Lindsey at 04/27/07 06:17 AM

I have been using Sprint mobile broadband for almost two years now. The speed is superior, I get service almost anywhere and the customer support is great. I pay $60.00 per month for unlimited use.

8 Posted by JohnBoy at 04/27/07 07:19 AM

I am in a rural area and I give anything to have broadband. I have Direct TV and their rates are as high as their satellites. Communities are too quick to grant franchises to these outfits that allow them to have their own little monopolies. Oh, but for competition. I've had Bellsouth (AT&T) since 1971 since I've had no other choice so early termination wouldn't be a huge deal.

9 Posted by Kathy at 04/27/07 08:31 AM

This is the first I heard of early termination fees by internet service providers. I had no idea and it never, ever occurred to me that any provider would do this!

I think it is just another way for them to pack their pockets. It really makes me feel angry!

I had earthlink and changed to verizon to save money. But I suppose I had used earthlink beyond the time limit for early termination fees.

Now that I learn that verizon does this I am very angry that they never mentioned it and weren't upfront about it. I don't remember signing any contract for DSL with verizon.

I think this is very wrong and decietful!

However, I am very grateful to be made aware of this information.

10 Posted by Peter Foster at 04/28/07 02:11 AM

When you don't have a chioce for internet service the early termination fees are really unfair. There is no chioce, if you want their service you sign the contrat no mater what it says. Bend over and take it America

11 Posted by Peggy at 05/02/07 01:57 PM

What if you are not happy with their DSL services or they just can't fix your problems with their services? I had been having problems with AT&T for more than a month. Do I still have to pay their early termination fee when and if I decide to switch companies?

12 Posted by William at 06/06/07 06:24 PM

Another issue is the constant "renual" of contracts. Want to switch from 1MBPS to 3MBPS... another 1 year contract... want to switch back? another 1 year contract. It costs them nothing and you are on the hook forever.

Verizon DSL... "can you HEAR me now?"

13 Posted by Luis at 08/31/07 04:22 PM

I think you should be able to buy the telephone of your choice and activate it with the company of your choice, and early termination fees should be ilegal.

14 Posted by GrayReb at 10/13/07 09:53 AM

Well, if we can just hang in there, perhaps things will change. California filed a federal lawsuit naming every major cable and satellite tv system as depriving consumers of choice. I'm in total agreement. Why should I pay for hundreds of tv channels I NEVER watch?

The lawsuit states that customers should have the option to pay only for those channels that they view.

As for bundled services, Comcast just sent me a letter requesting that I sign a 2-year contract for my phone, Internet and cable tv services. I don't want to sign...what can they do if I don't?

15 Posted by Juliana at 11/05/07 12:22 PM

I just opened an account with DirectTV last 10/25/07. I was told that I will get 3 months free with the Premier package that I subscribed. I asked them what the platinum package of comcast to their equivalent. And they said, premier. In short, cable was installed last tues. 10/30/07. Then I got received a billing statment last sat. 11/2/07 and was charged 85.36. NFL sunday ticket new customer offer 4 payments $69.99; Premier frist 4 months Ffree $0.00, Leased Receiver $4.99, Sales TAx $0.39. These things were not fully explained when I opened the account, all they said that my monthly bill will be 69.99. So, I called DirectTV today, 11/5/07 and asked them what would my monthly charges inclusive of leased receiver and taxes and said $115.75. So I'm not really saving any money at all plus the fact that I had been a customer of comcast for the last 18 years. And when I told them that I will terminate the service and go back to Comcast, they said that I have to pay $287.00 for early termination. For less than, 7 days, I can not even get out of this outfit!! Please advise what I can do. I guess theis is the dammest move I did in my life. I'd appreciate any input that you can share with me. Thanks

16 Posted by Pam at 11/16/07 04:08 PM

I just recently switched all three of my services back to Comcast. I did this mostly because I didn't realize that all FIOS meant was (Fiber Optic Network) and that Comcast's had the exact same thing for seven years, and their customer service is a hell of alot better. The marketers at Verizon are brilliant, getting people to switch from Comcast to, in essence, get the same thing they've had for years. I hate them for that. And, their bundle packages ACTUALLY include everything......Verizons don't.

17 Posted by fulwood at 12/01/07 06:52 PM

I do not want to bore any of you but i recently changed phone and internet service and went with Qwest. it has been the worst experience I have ever had with a company..they have continually billed me for services i did not order and every month i have had to spend countless hours on phone correcting their mistakes and each month receiving credits. i am even now on computer fixing this months' bill. it should be about $55 and they have billed me for $83. I am seriously thinking of getting rid of my landline, get pre-paid cell phone and going with another company for internet. my dialup was slow but never had billing problems..

18 Posted by Rachelle at 03/27/08 08:46 AM

I have been using Verizon DSL since Sept 2005 and terminated it last Feb 22nd, 2008 because i was moving to Asia. When i called to have my service terminated, i specifically asked the Verizon associate if i will be charged any penalties (even though i know that i should not be charged anymore since i have been with them for more than 1 year as the contract had stated). The person i talked to said that i will not be charged anything since i have gone beyond my initial 1 year contract and was moving to a place where they did not have any service.

My boyfriend called me yesterday to inform me that he received my Verizon bill and that i was being charged $79 for the early termination penalty.

I called verizon to ask them to reverse the charge and was informed that after each 1 year contract expires, another 1 year contract was enforced. They told me that they mailed a copy of the new contract every year according to FCC regulation. I asked them if they had any document like a signed delivery receipt or a registered mail to prove that they had indeed sent the contract because i never received the contract that they claim to send every year. The supervisor said that they didn't but that they also send a copy of the contract to my email address. i told them i will give them the password to my email account and let them check my whole account to see if i ever received their contract because i never saw a copy of that "new" contract. Apparently, they created a verizon.net email account that i was oblivious to and had never opened. She said that is where they send the contract i supposedly agreed to (how can i agree to something i know nothing about and have never seen?!). She further states that my lack of response to the email meant that i agreed to the contract. Duh?

the supervisor even implied that it was my fault. And that like phone plans, i should have known that the contract would be automatically renewed every year when it expired. She just wouldn't help me. I even offered to pay the additional money for the past 6 months that i used to get the no-contract rate (that i didn't know existed) but the supervisor said she couldn't retrovert my charges since the account was already closed.

to me it just seems ridiculous. it looks like a scam to squeeze as much money out of the consumer. I don't want pay the penalty because its just wrong. But i was informed by the verizon supervisor that it would go to collection agency which will eventually hurt my credit. But i am no longer living in the USA so how much could it hurt? Any advice?

Verizon customers and potential verizon customers beware.

19 Posted by ObeytheFist at 06/12/08 02:20 PM

You should add Clearwire to your list. After 18 months of inadequate service (upload speeds of 256k!!) I finally decided to pull the plug when it took me two hours to upload a tiny little 2 minute movie to YouTube.

This move is going to cost me $180.

20 Posted by Karen at 06/23/08 04:58 PM

I just got off the phone with Verizon- due to unemployment, I said I wanted to discontinue my DSL service that I have had for 3 years. The rep told me if I cancel, I will lose all of the info in my computer! Do they really think we are this stupid? I am considering contacting my state attorney general or consumer protection agency.