ETFs, Again…

Well the crusaders are out again trying to make it look like they are accomplishing something — anything to look good. This time its Round 2.0 of the ETF malaise. In a clear case of not understanding the economics of the nut, the Democrats march forward again like Don Quixote –

Sen. Amy Klobuchar (D-Minn.) asked chief executives of AT&T Mobility, Sprint Nextel Corp. and T-Mobile USA Inc. to explain whether they will pro-rate early termination fees as previously promised. Her letter comes amid a new Government Accountability Office report that found shortcomings with how the Federal Communications Commission processes consumer complaints.

“Early termination fees have been a real sore spot for consumers,’’ Klobuchar said. “Too often, consumers find out only after committing to a multi-year contract that their wireless service doesn’t meet their needs. That realization comes after it’s too late to exit their contracts without paying excessive penalties.’’

Sens. Klobuchar and Jay Rockefeller (D-W.Va.) are co-sponsors of a sweeping wireless consumer protection bill that would mandate the pro-rating of ETFs, charges levied on customers who prematurely break 1- and 2-year contracts covering subsidized handsets and service.

“It is time for the wireless companies to adhere to the assurances they made to the American consumer and start pro-rating these fees,’’ stated Klobuchar in the letter directed to AT&T Mobility’s Ralph de la Vega, Sprint Nextel’s Dan Hesse and T-Mobile USA’s Robert Dotson.

We too don’t like ETF’s. They are a hold over from the days that wireless providers needed to be sure that the expenditures will be amortized over the life of the contract. Which happened to be with very expensive equipment. Those costs have come down 5x with time and WiMax is going to drop it at least another factor of 4. ETFs today serve as a customer retention tool not a engineering safety net.

Want to get rid of ETF’s the right way? Then you need to break up the ETF-phone rental-price gambit. Its a vicious game. The phone companies like the rental game as it keeps bringing the customer back for a reup on a contract, even though the CPE side is a losing proposition for them. The phone Mfrs love this because it artificially props up their unit pricing as the true costs are buried in the contract. The tool to bust this open? — open device policy as Verizon has indicated they will honor for any device that works in their network.

It will be painful at first. Sticker shock for one. That $79 Samsung will really be $299 like it should have been. But that too will pass. For true device cost competition will ensue and that phone will drop to less than a $100. The carriers will drop their network rates as they are no longer doing carry forwards on the unit price of the phone as part of the monthly service. With nothing but network to offer the carriers will want to lower the barrier to entry to use THEIR network of their competitors. At that point the ETF dies as a marketing retention tool.

Klobuchar, bust open the carrier-manafacturer cartel and ETF’s go away. The consumer gains more than just a loss of ETFs as a consequence.

Linky.

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