Dear Chairman Genachowski,
Chairman Julius Genachowski
Federal Communications Commission .
445 12th Street SW
Washington, DC 20554
RONWYDEN
OREGON
223 DIRKSEN SENATE OFflCE BUILDING
WASHINGTON, OC 20510
(202) 224---5244
(202) 224-1280 (IDOl
Bnitro~tatcs~matc
WASHINGTON, DC 20510-3703
May 25, 2010
COMMITTEES:
COMMITTEE ON lHE BUDGET
COMMlTIEE ON ENERGY AND NAnJRAL RESQUR ES
SUBCOMMnTEE ON PUBUC LANDS AND FORES
SPECIAL COMMIlTEE ON AGING
SELECT COMMJlTEE ON INTElliGENCE
COMMlTIEE ON RNANCE
I write to call upon the Federal Communications Commission to immediately conduct an
investigation into Early Termination Fees (ETFs) for wireless devices, to help determine the
costs that wireless providers are attempting to offset through such fees. The nation's largest
wireless carriers claim that these ETFs, which can now be as high as $350, are in place primarily
because ofthe subsidized price charged to consumers when they initially purchase a phone from
their wireless carrier. Unfortunately, current data collected by the FCC does not include
information about pricing structures for wireless devices. Consumers are in the dark about how
much they are paying for their wireless device, regardless ofwhether they are subj ect to an ETF.
Given Verizon Wireless' response to the FCC's 2009 inquiry regarding ETF structures for
"advanced devices," it appears that the cost ofthese termination fees are based on much more
than recouping the wholesale cost or retail value ofthe wireless device. In its response to the
FCC inquiry, Verizon stated that, "the ETF is not limited to the recovery ofthe wholesale cost of
the device over the life ofthe contract. .. the ETF partially compensates Verizon Wireless for all
the costs and risks ofproviding service, which include advertising, commission, store costs, and
network costs." Industry's responses to the FCC's inquiry strongly suggest that ETFs are
designed to socialize the costs ofdevices among all ofa firm's wireless subscribers. The recent
announcement by the nation's largest wireless providers that their ETFs will substantially
increase conspicuously coincides with the anticipation that new smart phones will be on the
market early this summer. It is unclear whether these new fees are related to the expense ofthe
new smart phones, or whether they are designed to limit a firm's uncertainty about the
marketplace.
The ETF seems to have little basis on the cost ofthe phone that a consumer chooses to buy. The
obscure manner in which ETFs are constructed does little to benefit consumers or competition in
the marketplace. The pricing structures that wireless carriers employ blur the line between the
price ofa handheld device and the voice and data service. In conducting its investigation, I ask
that the FCC also determine to what extent monthly service charges for voice and data
communication are established to finance the costs ofwireless devices across all ofthe carrier's
subscribers. The wireless marketplace is now dominated by only a few national providers; it
would be valuable to know whether any ofthem reduce their monthly service fees once costs
associated with a subscriber's handheld device are recouped.
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Mobile communication is now ubiquitous in America - the wireless industry enjoys a
penetration rate of90 percent and cellular networks are primary means oftelephonic
communication for over a third ofAmerican households. It is hard to see how consumers and
competition can drive innovation in the marketplace when consumers must choose their wireless
carrier based upon the devices they offer, and must stay with a sub-optimal carrier in order to
avoid exorbitant exit fees.
I appreciate the inquiries the FCC has recently made regarding this issue and believe that it
raised appropriate and timely questions. To more clearly understand ETFs and their role in the
wireless market, the FCC, Congress, and the American public would benefit from understanding
the pricing structures employed by wireless carriers to finance subscriber handsets.
Sincerely,
Ron Wyden
United States Senator