Consumer advocates have long argued that the steep early termination fees (ETF) that the U.S. wireless operators typically charge for an early cellular contract exit have made it difficult for consumers to change service providers. But that's about to change.

The major carriers are all moving to less onerous service agreements that reduce the financial burden on unhappy subscribers bent on making a switch. Beginning later this month, AT&T will move to an early termination policy under which the fee will be progressively lowered each and every month over the entire contract period. Moreover, Sprint and T-Mobile say they will move to prorated plans of their own by mid-year. (Verizon Wireless began prorating its ETF in late 2006.)

Raising customer satisfaction is certainly one reason behind the change of heart. However, the carriers appear to be far more concerned about incurring future financial damage from new regulations at the state level as well as several pending class action lawsuits.

Pushing the FCC

According to the Associated Press, Verizon Wireless has begun pushing the FCC to adopt a rule under which the states would be prevented from regulating their ETF policies. In exchange, the carriers would be required to prorate their termination fees as well as give new customers a 30-day grace period to cancel service contracts without penalty.

Its not much of a tradeoff given that at least some wireless customers already receive just such a deal. For example, Sprint currently waives its $200 per line ETF for cancellations that occur within the first 30 days of a contract.

The carriers also would like the FCC to step in to the fray because its increased scrutiny of the matter would help fend off new legislation at the federal level. At least some members of the U.S. Congress have long been eyeing the carriers' restrictive policies with a baleful eye.

“Early termination fees are a family budget-buster,” noted Senator Amy Klobuchar (D-MN). “Families should be able to terminate service without outrageous fees. It's a simple matter of fairness,” she said.

Exclusivity Under Fire

The nation's wireless carriers also have been feeling intense pressure on the legal front. Cell-phone service contracts typically include a mandatory arbitration requirement for resolving disputes, including those pertaining to the charge of an early cancellation fee. However, a California appeals court has reject T-Mobile's claim that the Federal Arbitration Act preempts any rule that “class action waivers are unconscionable under California law.”

Last year's California court decision is allowing a class action suit to proceed that claims T-Mobile's $200 ETF constitutes an unfair business practice. Similar suits also are currently pending in California and other states that potentially could cost the major wireless billions of dollars.

The FCC is also expected to examine handset deals such as the one that gave AT&T an exclusive lock on iPhone sales last year. The Rural Cellular Association recently asked the FCC to initiate a rulemaking to investigate the anticompetitive effects of such exclusivity arrangements and their impact on rural residents.

“For many consumers, the end result of these exclusive arrangements is being channeled to purchase wireless service from a carrier that has monopolistic control over the desired handset and having to pay a premium price for the handset because the market is void of any competition for the particular handset,” the RCA said. “Absent these exclusivity arrangements, these popular handsets would likely be sold by multiple carriers, with fewer conditions, and at lower prices to consumers,” the association's lawyers added.