10/28/2008 by www.mountainviewcellphones.com

The biggest grudge about early termination fees (ETF) is paying it.  So, this marketing tactic that has been the staple of the wireless business for about 10 years now is going the way of the dodo.  Sprint has announced the change in termination fees once their new billing system is in place…so that will be about another 3-4 months away (given how billing systems tend to never get installed flawlessly).

All the carriers are now moving to pro-rata early termination fees that decline over the time period of the contract.  I think this will increase churn throughout the industry as this was the #1 reason why people don’t change carrier relationships.  How many times have I heard “I’m under contract” when in reality customers got discounted hardware and don’t want to pay full value for it.

The ending of early termination fees could put a big dent in hardware manufacturers, also.  As carriers move more and more in the direction of letting the consumer bear the total cost of hardware (not subsidized by services), manufacturers are being put in front of the customer without subsidizing revenues for their products.  This will continue to push margins down for this sector as carriers can no longer subsidize the hardware thru service fees (in effect financing the hardware purchase with a loan to the customer).

As phones can do more and more, the cost goes up for everyone.  Carriers and manufacturers of major carriers have kept these costs from the consumer while prepaid services have passed on everything to the consumer.  Contract carriers will move more and more in the prepaid direction…even nearly identical phones in the prepaid versus contract worlds cost much different.  The carrier shield is being lifted and the manufacturer must face the consumer not only on features but on price, eye to eye.

Again, I say this is a good thing.  Carriers can dictate features of phones so it works with their networks (that’s ok) but manufacturers should be able to sell whatever they want that is tested and works to specification.  Consumers can get educated on the true price of a phone or smartphone, and we could probably eliminate some worthless positions in the carrier industry that do nothing but compare cost and benefit of phone pricing with services rather than letting the market and manufacturer decide on prices for handsets.

It’s an inevitable trend.   Sprint has had a no contract plan for 2 years now, but you would not know about it because no one is incented to sell it and it’s a horrible deal.  Verizon recently introduced no contract plans also but again…I’m certain this is more for goodwill with the FCC or some other State attorney general than actual corporate strategy.

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