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FCC probes Google, T-Mobile for double-whammy termination fees

Google, T-Mobile are questioned by the FCC for double-charging Nexus One users who end their service contract early.

On Monday, the FCC asked Google, Verizon, AT&T, Sprint and T-Mobile to explain how they tell their customers about early wireless contract termination fees. Notice anything interesting about that list? Google is the only handset retailer in the bunch.

The others are carriers. That's because if someone buys a Nexus One phone purchased through Google with a two-year T-Mobile contract, and the user wants out of that contract, the user is expected to pay two "early termination fees" (ETF). One fee would be charged by Google and a second charged by T-Mobile.

The FCC explained its concern in its letter to Google,

"The combination of ETFs from Google and T-Mobile for the Nexus One is also unique among the four major national carriers. Consumers have been surprised by this policy and by its financial impact. Please let us know your rationale(s) for these combined fees, and whether you have coordinated or will coordinate on these fees and on the disclosure of their combined effect."

The specific policy, according to Google is this: In most states, except California, users have up to 14 days to return a Nexus One phone and avoid Google's EFT. In California, they have 30 days, according to Google's Terms of Sale information posted on the Nexus One Web site.

If you purchase a phone, but cancel the T-Mobile contract after the 14-day (30-day) legal trial period but before completing 120-days of service with T-Mobile, Google will charge you the difference between your discount price, and whatever the full unlocked price of the device would be. At the moment, Google is charging $529 for an unlocked Nexus One and $179 for the one with the T-Mobile contract. So Google would bill you $350... directly to the credit card you used to purchase the phone. Here's what Google says on the matter.

"You agree to pay Google an equipment subsidy recovery fee (the "Equipment Recovery Fee") equal to the difference between the full price of the Nexus handheld device without service plan and the price you paid for the Nexus handheld device if you cancel your wireless plan prior to 120 days of continuous wireless service. For example, if the full price of the Nexus handheld device without service plan was $529 USD and the price you paid for the Nexus handheld device was $179 USD with a service plan, the Equipment Recovery Fee you pay will be $350 USD in the event you cancel within the first 120 days of carrier service."

But T-Mobile will also be billing you an early termination fee. In theory, this, too, is to cover the cost of the subsidized phone. Here is what T-Mobile will charge you, according to their own terms and conditions document.

"AN EARLY TERMINATION FEE WILL APPLY IF YOU CHOOSE TO END YOUR SERVICE BEFORE THE END OF YOUR TERM, OR IF WE TERMINATE IT EARLY. FOR SERVICE ACTIVATED, OR ACCEPTANCE OF A NEW ONE OR TWO YEAR TERM, ON OR AFTER 06/28/08, THE EARLY TERMINATION FEE IS: $200 IF YOU TERMINATE WITH MORE THAN 180 DAYS REMAINING ON YOUR TERM; $100 IF YOU TERMINATE WITH 91 TO 180 DAYS REMAINING ON YOUR TERM; $50 IF YOU TERMINATE WITH 31 TO 91 DAYS REMAINING ON YOUR TERM; AND THE LESSER OF $50 OR YOUR MONTHLY RECURRING CHARGES (including any applicable taxes and fees) IF YOU TERMINATE IN THE LAST 30 DAYS OF YOUR TERM."

So, if you cancel your contract at about the two month mark, Google wants an additional $350 to cover the cost of the phone and T-Mobile wants an additional $200 to cover the cost of the phone. The unlocked phone would cost you at least $729. But wait, that's not all. Google also wants to charge you unspecified fees as "damages" because you didn't keep your T-Mobile contract. These are the search giant's words on the matter:

"You agree that the Equipment Recovery Fee is not a penalty but is for liquidated damages Google will incur as a result of such cancellation. These damages may include, but are not limited to, loss of compensation and administrative costs associated with such cancellation or changing of wireless service provider(s), market changes, and changes in ownership. Please note that the Equipment Recovery Fee is imposed by Google and not your chosen carrier and is in addition to any early termination fees that may be charged by your chosen carrier in connection with termination of your wireless plan prior to fulfillment of your chosen carrier’s service agreement term. ... returned delivery of Devices that have been engraved with a personal message will result in a $45 USD engraving fee."

While this information is available if a user clicks a link on the page called "Terms of Sale," the fact that this fee exists is not noted in the order-entry information, at least at the time I researched this blog (January 27), is misleading on Google's part. Especially considering that T-Mobile's EFT information is showcased from the order page.

Click for larger image.

I find this to be crafty on Google's part. Users are not accustomed to having termination fees from the retailer from which they bought the device, so they wouldn't know they have to seek out a page with the "terms and conditions" that alerts them of such fees.

Why not put this link right next to the link offered for T-Mobile's EFT info?

That's not to say that Google and T-Mobile is the only offender when it comes to surprise ETFs. Yesterday's action was an extension of the investigation the FCC launched in late 2009 when Verizon Wireless angered customers by doubling its termination fees for smartphone users. Most carriers offer discounts on phones if the user signs a two-year contract and charges fees for those who want out early.

Carriers have until Feb. 23 to respond to the FCC in this latest round of inquiries. My prediction is that the FCC is going to require some standardization in where and how consumers are alerted to these fees. My hope is that the agency will also impose standardization in how carriers are allowed to assess them.

The FCC said it is investigating because there is no standardization among carriers regarding these fees, and that these fees can be substantial (as is the case with the Google/T-Mobile double-whammy). The FCC notes that those fees are on the rise and they limit a consumer's ability to transfer between carriers. The agency wants to know exactly when and how consumers are informed of the fees.

While it is perfectly reasonable that carriers re-coup the cost of a subsided device if a contract ends early, note how both Google, T-Mobile and use their agreements to make you acknowledge, "The Early Termination Fee is part of our rates and is not a penalty." [Bold emphasis is T-Mobile's.]

That disclaimer is patently ridiculous.

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