Verizon defended its early termination charges for cellphone contracts Friday, telling federal regulators that the high fees help the poor by making it more affordable for them to access the mobile internet.

The Federal Communications Commission asked the nation's largest wireless carrier earlier this month to explain why it had raised the fees for breaking a mobile phone service contract to $350 for its smartphones. In a response that gave no ground to an increasingly active FCC, Verizon said the fees were a necessary and good way to subsidize expensive smartphones so that users don't have to pay for the hardware up front, so long as they sign a two-year contract.

That arrangement "enables many more consumers, including those of more limited means, access to a range of exciting, state of the art broadband services and capabilities (.pdf)," Verizon VP Kathleen Grillo wrote. "The company’s pricing structure therefore promotes the national goal of fostering the greater adoption and use of mobile broadband services."

Verizon raised the fees in November, with a $10 discount for each month of the service contract fulfilled for smartphones. Even so, if a customer cancels on the last day of their 2-year contract, they'd have to pay Verizon $120 for early termination.

The FCC didn't seem particularly impressed with that arrangement. "If the ETF is meant to recoup the wholesale cost of the phone over the life of the contract (.pdf), why does a $120 ETF apply?" the agency asked in its Dec. 4, 2009 inquiry.

Verizon responded Friday that it loses money when customers break their contracts. Customers who leave typically go after one year, entitling the company to about $240. While that's enough to cover the costs of the device, Grillo said there are other unrecouped expenses, such as marketing.

Verizon Wireless estimates that, at the twelve month point in the contract term, its typical loss from the early termination is more than double the applicable remaining ETF amount for an Advanced Device ($230). Were Verizon Wireless to prorate the ETF in a manner that would reduce its amount to zero in the last month of the contract, the net losses to the company would be even greater.

Chris Riley, a policy lawyer at the public interest group Free Press, said that's just Verizon blowing smoke.

"Verizon claims that it must keep up these harmful practices to maintain its operating costs, but it is hard to imagine that this highway robbery is necessary when you look at the company's sky-high profit margins," Riley said. "The bottom line is that FCC needs to spur some real competition, which will lead to lower device prices and more choices for consumers who don't wish to be bogged down in long-term contracts."

Verizon pulled in $13.1 billion in revenue in the third quarter of 2009, banking $4.4 billion in profit (.pdf) after subtracting the money it spent on building its network, according to its financial statements.

The FCC also asked Verizon about charges for accidental web usage by customers who don't have a data plan, but accidentally launch their phone's web browser. That's been a crusade launched by the New York Times' David Pogue.

But Verizon says its web browsers all have a default Verizon homepage, and it doesn't charge users who go there. It also told the feds that its employees would be happy to show people how to lock their phones, so that the browser doesn't go on when the phone is jostled in a pocket or bag.

See Also: