Verizon's fee hike: A surprising slap to its best customers

By choosing to boost its early-termination fees (ETFs) to as much as $350 for its smart phones, like the Blackberry Storm2 and the hot new Motorola Droid, Verizon Wireless has chosen to (literally) penalize some of its best customers.

The hike is a slap to Verizon’s “advanced device” owners, which are every carrier’s biggest prize because they tend to buy more services than most customers—voice minutes plus lots of data downloads. Indeed, Verizon itself told us last year that Blackberry-type customers drop twice as much revenue into the till as traditional voice-only cell users. “Those customers generate about $100 in revenue per month whereas the average customer is only $50,” Lowell McAdams, President and CEO of Verizon Wireless told us last year in an in-depth interview.

Yet Verizon is doubling the fees for these big spenders while keeping the current $175 maximum ETF for owners with less-sophisticated standard and feature phones and modems.

It’s true that the $350 ETF will be reduced by more each month that you stick with your one- or two-year contract than is the 175 tariff. The higher fee will drop by $10 each month, while the $175 ETF will continue to pro-rate at $5 per month. But that’s still small consolation to smart phone owners.

The move is surprising from a carrier that’s received high marks for customer service and overall satisfaction from Consumer Reports readers in our cell service Ratings (available to subscribers). Paradoxically, Verizon has also often been an industry leader in softening or eliminating unpleasant plan terms and conditions. For example, Verizon was first to pro-rate early termination fees, way back in 2006, while the last to do so was Sprint in late 2008.

Tom Pica, a Verizon spokesman, downplayed the importance of the higher ETF. “It applies to a very small percentage of customers,” he told me, referring to the fact that only one percent of Verizon customers quit the top-rated service in any given quarter, so the overwhelming majority of Verizon “advanced device” buyers will never actually have reason to pay the fee.

Perhaps so, but we still find the fee to be objectionable. We’d urge buyers of the Droid, which goes on sale tomorrow, to voice their objections when they buy the device—or maybe even instead of buying it, if you feel strongly about the hike.

If you are planning to buy a Droid, or any other Verizon smart phone or netbook (which also qualify for the higher fee) consider doing so before November 14, after which the higher ETF kicks in on new purchases of those “advanced devices.” —Jeff Blyskal

Comments

[Brett]

How are the people who decide not to continue service with any company that company's best customers? What ridiculous logic. The average subsidy for a smartphone from these companies is close to $400 for a smartphone, while it's closer to $150-$200 for a regular device. If a customer gets that much credit for a phone, and then decides to not finish the 2 years out and bail for another company, then the person who received a higher subsidy for the phone should pay a higher ETF. CR is getting desperate for additional ways to paint the telecom companies as Darth Vader organizations...

[George Kaplan]

I think you're missing the point. Verizon has been running buy one/get one sales on Blackberry phones. People were taking the "free" one, paying an early term fee of $175, then selling it on eBay for $300 to $400. This revised fee takes the profit out of that idea.

I don't like Verizon, but I do understand their motivation.