Travis,

I agree wholeheartedly that a customer should be held to the terms of a
contract and certainly should be responsible for reading and accepting the
terms of the agreement. 

The issue is that some contracts are designed to penalize rather than recoup
costs.  The measure of a breach of contract is always supposed to be the
loss on that individual contract not a penalty to help cover the costs lost
on other contracts. (i.e. the cost shifting discussed below). 

Absent some showing of fraud or similar abuse, there are no penalties
recognized at law in contracts.  So, to the extent that a termination fee is
imposed to penalize an unwilling party to the contract, the fee is invalid.

- Larry


-----Original Message-----
From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On
Behalf Of Travis Johnson
Sent: Sunday, June 01, 2008 2:41 PM
To: WISPA General List
Subject: Re: [WISPA] FCC changes

Or really, the consumer could just read the contract before they sign 
it. Problem solved. ;)

Travis
Microserv

Larry Yunker wrote:
> I think that the FCC has a bona fide reason for addressing the early
> termination fee issue.  The underlying concern is that early termination
> fees often do not reflect the true cost incurred by the contracting
provider
> as a result of the subscriber's breach of contract.
>
>  
>
> In reality, an early termination fee should be prorated over the course of
> the contract such that at the beginning of the contract term, the cost
> includes the full cost of equipment, installation, and acquisition which
has
> been lost due to that customer.  Whereas, as the subscriber nears the end
of
> his term, there should be very little cost remaining to be recovered.
>
>  
>
> The problems that arise are these:
>
> (1) Early termination fees are often too low to cover the full cost of the
> equipment/installation, so companies "average-out" losses by
cost-shifting. 
>
>
>
> For example assume Customer A and Customer B both sign up for 2 year terms
> with a $200.00 early termination fee and each received equipment and
> installation worth $350.00.  Customer A drops in month 1, so the Service
> Provider loses its entire $350.00 investment.  Customer B drops in month
23
> so the Service Provider has recouped most 95% of its $350.00 investment.
> The Service Provider loses $150.00 on Customer A but gains roughly $182.00
> by overcharging Customer B.  This system shifts the cost burden from those
> who drop early to those who drop late.
>
>  
>
> (2) Customers are usually not made aware of the costs of the equipment and
> installation that they are receiving as part of their package deal.  If
> customer's understood that their neat new Razor phone actually costs
> $350.00, they might opt to keep their old phone longer or they might not
buy
> at all.  Similarly in the broadband arena, if the DSL subscriber
understood
> that the DSL/Wireless router costs $100 and the DSLAM port costs $200,
they
> might think twice before signing up for 2 years at $20.00 a month. 
>
>  
>
> (3) Providers lose some of their incentive to maintain quality service
> and/or customer service when they know that their clients are under an
> oppressive contract which limits their ability to choose an alternative
> provider.  
>
> For example: If a provider knows that their customer is on a 2 year term
> with a $200.00 early termination fee and that provider charges the
customer
> $40.00 per month for service, the provider has very little incentive to
> respond to the customer during the last 5 months of the contract.  During
> that period, the provider stands to gain more from the early termination
> than they do through the subscription fees!
>
>  
>
> Potential Solutions to these problems:
>
> (1)    Require disclosure and option to pay actual installation,
equipment,
> and acquisition fees in lieu of early termination fees.
>
> (2)    Require that cancellation fees reflect the actual cost of
> installation, equipment, and acquisition fees. (This one is pretty
> idealistic. providers will almost always eat some cost and pass it along
> through subscription fees).
>
> (3)    Require proration of early termination fees so that the
cost-shifting
> described above CANNOT OCCUR.
>
> (4)    Allow/Encourage/Require? competing providers to buy-out the
prorated
> balance of any early termination fee for a new customer that wants to
switch
> to that new provider.  Often the cost of buying out a prorated balance
will
> be less than the cost of new customer acquisition, so it would be a
win-win
> for the new provider and the new customer.
>
> (5)    Encourage interoperability of equipment between providers or
provide
> some realistic secondary market for customer equipment so that costs of
> switching carriers could be mitigated.  Make "locking phones" and/or CPE
> illegal wherever the customer "owns" the equipment.
>
> (6)    Provide a mechanism for regulation of minimum standards of service,
> if a provider cannot meet the minimum standard of service then a customer
> should be released from his contract without penalty and the equipment
> should be returned to the provider. 
>
> a.    This idea could be established in the cell phone industry by
recording
> a baseline of coverage within the first 30 days of new service and
comparing
> changes in coverage to that first 30 day baseline.  If the coverage drops
> significantly from the baseline then the customer would have a basis for
> dropping without penalty.  In the fixed wireless business, this process
> could be more difficult due to the uncertainty of outside interference,
but
> the concept remains the same.  Set a baseline, set a minimum threshold and
> create a procedure for testing against that threshold.
>
>  
>
> Well that's my two cents worth. hopefully some of these ideas make it
> through to the powers-that-be in D.C.
>
>  
>
>  
>
> Larry Yunker, J.D. 
>
> Network Consultant
>
> [EMAIL PROTECTED]
>
>  
>
>  
>
> -----Original Message-----
> From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On
> Behalf Of Travis Johnson
> Sent: Friday, May 30, 2008 11:51 PM
> To: [EMAIL PROTECTED]; WISPA General List
> Subject: [WISPA] FCC changes
>
>  
>
> This could turn in to something it shouldn't really fast...
>
>  
>
>
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/30/AR2008053002
> 776.html
>
>  
>
> We charge 100% of the remaining contract because we are eating the cost 
>
> on the equipment and rolling a truck (for both installation and pickup). 
>
> Now they want to regulate how much we can charge for early termination. :(
>
>  
>
> Travis
>
> Microserv
>
>  
>
>  
>
>
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