Recently the FCC proposed a rule that would ban early termination fees on things like DIRECTV. It would let you sign a contract but get out of it at any time even if you just signed a contract. Because of this DIRECTV says it would be forced to raise the cost of its service.
This month DIRECTV sent a letter to the FCC warning that this new rule would drive up the cost of the equipment. This experiment can cost as much as $700 per new subscriber and DIRECTV expects to slowly make that back over the life of the contract. IF customers cancel early they want the fees to be able to cover that costs.
“We discussed DIRECTV’s comments in this proceeding, focusing on the purpose of DIRECTV’s ETFs and the potential harm to consumers if the Commission were to prohibit them. We noted that DIRECTV employs ETFs to permit subscribers to pay over time for the equipment necessary to receive satellite service and associated installation costs. Such equipment and installation costs can range from $450 to $700 per new subscriber. DIRECTV does not charge customers ETFs after their first two years, unless a customer chooses to accept an offer with an ETF, such as a new equipment upgrade or a retention offer with a lower monthly price. But ETFs for such customers are either shorter in duration, lower, or both. As we pointed out in our comments, without ETFs, DIRECTV would likely be forced to require subscribers to pay equipment and installation costs up front, raise monthly prices, or both. Thus, while this proceeding’s goal is to make switching providers easier, the unintended consequence would be to make switching to DIRECTV considerably harder, particularly for low-income subscribers. “ DIRECTV said in its letter to the FCC.
Because of all this DIRECTV would be forced to charge more upfront raising the costs its signups or raise the cost on remaining customers to cover the cost of the equipment for customers who canceled before the end of their contract.
The new rule is not in place yet but many expect it to become law and would likely impact a large number of companies who in the past gave equipment upfront cheap because they locked customers into long term contracts. On the other side it will free millions of customers from long term contracts they no longer want to be in.