Published January 13, 2015
Breaking up with your Internet service provider isn't hard to do — but it may cost you.
Customers who subscribe to a high-speed Internet plan may pay $150 or more if they terminate their service before their contract has expired, according to a new survey from Consumers Union, the nonprofit publisher of Consumer Reports magazine.
The practice is well known among cell phone providers — early termination fees in that industry run from $150 to $240 per line, according to the group.
The goals of the fees are largely the same — to cut down on "churn," the process of customers dumping one service provider to pursue greener pastures with another.
Jeannine Kenney, a senior policy analyst with the group, said the penalties "deprive consumers of the benefits of competition."
Broadband companies that assess termination fees, such as Verizon Communications Inc. (VZ), say they are justified because customers who sign up receive a special low rate and other benefits.
Bobby Henson, director of media relations for Verizon, told Consumers Union that the company charges the fee to "regain what we have been giving the customer for free."
Henson said in addition to offering free installation and sometimes free equipment, customers also save $2 to $8 on their monthly rate.
Pricing broadband competition can be difficult. Broadband is rarely priced as a stand-alone service. Whether offered by a telephone company or a cable company, it is usually bundled with other services such as voice and video.
The advantage to the customer is easier billing and usually a price break. But the down side is if they drop one of the services to pursue a better deal elsewhere, they lose the discount.
Loyal customers produce steady, predictable revenue. Churn is an important measure when Wall Street analysts evaluate the health of subscriber-based companies.
It remains to be seen whether penalties for Internet customers will cut down on churn. Consumers Union in its annual cell phone survey found that nearly half of all cell phone subscribers who were considering switching carriers were deterred from doing so because of early termination penalties.
The organization surveyed several broadband service providers and found that the two largest cable companies, Comcast Corp. and Time Warner Cable Inc. (TWX), do not assess early termination fees.
AT&T Inc. (T) charges a $99 early termination fee, but subscribers get a month's service free for signing a long-term contract, according to the survey.
Verizon charges $69 for its FiOS fiber optic broadband service and $79 for its digital subscriber line (DSL) service, but the penalty can be avoided if service is canceled in the first month.
Qwest Communications International Inc. (Q) charges a $200 early termination fee on a two-year contract, according to the survey, with rates the same as month-to-month service. But customers are not subject to future price increases.
Earthlink charges a $149 early termination fee on a one-year contract.