The American Spectator

br> — Stuart Koehl br> Falls Church, Virginia /p>

Mr. Young’s article “In Defense of Early Termination Fees” I must say is interesting but only half right.

Yes, ETF’s had a purpose. In the early years, phones cost $3,000 and up. Not only that but there was a huge investment in network resources to support the phone. The wireless carriers needed the assurance of ETF’s to placate the suppliers of capital to build those networks.

Well now, the network is built out and the lenders have been paid. Phones, even the fancy iPhone, as a naked buy goes for little over a $1,000. Most others going for the south side of $500. But the justification for ETF’s for the carriers has long since left the scene of the crime.

Yes, the carriers are subsidizing the cost of the phone through higher rate structures. But consider, what happens to you the cell user after the contract period is up and the phone cost amortized? Does your communication rate by that carrier drop? I would hazard to say it does not. This indicates that the phone subsidization is a marketing ploy to maintain rate margins. Not every person who has a phone upgrades at the conclusion of contract.

The subsidization not only affects the carrier’s rate but the actual cost of the phone. Since the end user never sees the true cost of the phone, there is less pressure on the cell manufacturer’s to produce really cheap phones. The effects are similar to those of third party pay issues in the medical field.

What would be the impacts if consumers paid the full boat cost of a phone? Two, one immediate, one longer term. The rate cost structure of the carriers would drop to a great degree. Possibly by half of the current rate. In the near term, yes, some cell phones would rise in price with longer holds by customers and less churn. But over the long term the price would fall to unheard of price levels as true competitive forces are brought to ground.

There is a corollary to this — portable phones. Those portable landline wireless phones attached to the PSTN network. Ten-fifteen years ago these phones for a single unit were in the $300 per range. I recently purchased a three-phone set (master+base, two slave units) for less than $65 in less worthwhile U.S. dollars. The level of engineering complexity of these devices is on par with a cell phone’s sans the camera. The same would be expected for cell devices in an open competitive market.

p>I close by pointing out that at least one carrier has smelled the coffee on ETF’s. T-Mobile will begin offering a month-to-month service with no ETF’s. T-Mobile hopes to capitalize on the California decision to the determinant of its competitors. If it catches on the other carriers will follow. Which tends to beg the question — are ETF’s a capitalization reserve effort or a marketing ploy to bolster retention levels? The answer is clear. br> — John McGinnis br> Arlington, Texas