Targeting a top gripe by cell phone users and breaking ranks again with its industry, Verizon Wireless plans to prorate the fee it charges subscribers who break a contract so they only pay an amount proportional to the time left on their agreements.
The change in the early termination fee will be implemented this fall for all new customers and any Verizon Wireless subscribers who sign a new contract, the company announced Wednesday in tandem with a speech by CEO Denny Strigl at an industry conference.
The company, owned jointly by Verizon Communications Inc. and Vodafone Group PLC, also said it was addressing another customer frustration by enabling existing subscribers to upgrade to a new handset at the same steep discounts being offered to lure new customers.
U.S. wireless companies, their subscribers trapped by contracts and early termination fees, typically offer much smaller savings, if at all, on upgrades while they're under contract. Verizon's new flexibility will be available to subscribers with calling plans of $50 after 12 months.
Wireless cancellation fees are a longtime sore point among consumers, provoking lawsuits and legislative proposals to prohibit and cap them.
Earlier this month in California, a state court decided to allow a class action suit seeking to recover early cancellation fees from Verizon Wireless and Sprint Nextel Corp., according to the seniors advocacy group AARP, which is providing legal assistance for the plaintiffs. And in early June, Democrats in the Michigan Legislature proposed a bill that would limit termination fees to $20.
About 50 million of Verizon Wireless' 53 million subscribers are under contract, and nearly all would face an early termination fee of $175 if they decided to change carriers or just close their accounts.
"The number of complaints on this issue is the single largest that our customers have," Strigl said in an interview before the speech, referring to the termination fees as a "black eye" for the industry. "It's a legitimate complaint: If they leave in month one or month 23, they pay the same charge."
The change to prorating the fee isn't as big a gambit for Verizon, which boasts the industry's best customer retention rates, as it might be for many rivals with heavier subscriber defections.
Wednesday's announcement marks at least the third time that Strigl has used the annual Yankee Group wireless conference to break ranks with his top rivals.
In 2003, Strigl came out in favor of giving cell users the right to keep their phone numbers if they decide to change providers, an edict from the Federal Communications Commission that all the top wireless companies were trying to fight in court. The sudden reversal by Verizon Wireless scored a public relations coup, with its rivals left looking less customer friendly.
Last year, citing customer privacy concerns, Strigl said Verizon Wireless would not participate in an effort to create a directory of cellular phone numbers like that in the traditional wireline industry.
Asked if the latest move on termination fees might provoke more consternation, Strigl said, "That's what industry leaders do."