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Saturday, February 9, 2008

Cellphone Early Termination Fees

I've heard of telecommunication companies berated for their "early termination fees". If you terminate your contract within 2 years or switch providers, you are required to pay a termination fee.

The problem is that a cell phone actually costs a lot more than the average person is willing to pay. If you had to pay $250 upfront to get cell phone service, a lot of people would balk at the purchase. Instead, you are sold the phone for only $50 and $10/month of your bill goes towards the cost of the phone. The cell phone provider loses money when they sell you a phone below cost, and makes it back over the lifetime of your service contract.

The termination fee allows the cell phone company to recoup the investment they made when they sold you a phone for a below-market price.

Telecommunication companies do a lot of unethical things, but early termination fees are not one of them. There is nothing intrinsically evil about cell phone early termination fees. There are stories where people have lousy reception where they live and have a hard time terminating service, which is a separate problem.

1 comment:

Anonymous said...

What about when the cell company increases your rate during the contract period? In that case have they terminated the agreement for me?

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