AT&T imposes inexplicable early termination fee on iPhone users

by Bob Williams, Hear Us Now

All those sleek new iPhones that have been flying off the shelves at $600 a pop have a built-in feature that isn't being touted by Apple or network provider AT&T -- an inexplicable early termination penalty of $175.

Wireless phone carriers have imposed such penalties for years, arguing that they are necessary to to help make up for lost revenues from discounted or free phones they use to coax customers into signing long term contracts.

But Apple and AT&T are not offering any sort of discount on the highly-coveted iPhones, which went on sale last Friday. Customers were actually camping out in line just to buy one.

Which brings us to the other -- and probably more important -- reason wireless carriers impose early terminiation penalties on their customers. It's because long term contracts with early termination penalties are devastatingly effective in keeping customers from switching carriers.

In our annual cell phone survey, Consumers Union found that nearly half of all cell phone customers who were considering switching carriers were deterred from doing so by the early termination penalty. That effectively means wireless phone companies don't have to offer superior networks or service to keep their customers loyal; the penalties do the work for them.

But AT&T can't use even that infuriating, "forced loyalty" excuse to justify its early termination penalty for iPhones. iPhone customers have no other choice except a two-year service contract with AT&T.

Were they to have a choice, AT&T probably should be worried about customers fleeing in droves based on the early reports about how its Edge Network for iPhones is working. The network crashed in many parts of the country last weekend, although AT&T says it had nothing to do with iPhones. Further, many iPhone customers are extremely unhappy with the speed of the network, which in many cases is slower for web surfing than dial-up Internet services.

Columbia University Professor Tim Wu, who coined the term "network neutrality" a few years ago, has written an excellent article on the odd and anti-consumer decision by Apple to hitch the iPhone to AT&T exclusively, which you can read by clicking here. He makes a comparison with the computer business.

"Imagine buying a Dell that worked only with Comcast Internet access or a VCR that worked only with NBC," writes Wu.

He says the iPhone will not be able to fulfill its hype about being "revolutionary" so long as it remains tethered to AT&T's network exclusively.

"If Apple wanted to be revolutionary, it would sell an unlocked version of the iPhone that, like a computer, you could bring to the carrier of your choice. An even more radical device would be the 'X Phone'—a phone on permanent roam that chose whatever network was providing the best service. Imagine, for example, using your iPhone to talk on Sprint because it had the best voice coverage in Alaska, while at the same time using Verizon's 3G network for Internet access. Of course, getting that phone to market would be difficult, and Apple hasn't tried."

In the short term, we are hopeful that Apple with dump its exclusive deal with AT&T for network service. In the longer term, we would love to see Apple and other forward-looking telecom companies come to market with the X-Phone type devices described by Professor Wu, which can pick and choose the best network based on the circumstances.

At an absolute minimum, customers and policymakers should demand that AT&T immediately drop its unwarrented and anti-consumer early termination penalty for iPhone service.

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