WASHINGTON—There he goes again.
Verizon Wireless President Denny Strigl once again is breaking with the pack, this time with a strategic decision to become the most consumer-friendly national wireless carrier where controversial, lawsuit-prone, early-termination fees are concerned.
At The Yankee Group’s 2006 North American Wireless Leadership Summit last week in New York, Strigl told the audience Verizon Wireless this fall will begin pro-rating early-termination fees (ETFs) for customers who terminate their service contracts.
ETFs can cost consumers between $150 and $200 if they change wireless carriers or drop service altogether before the end of their contracts. It is a huge issue that occupies federal and state regulators with consumer complaints and plaintiffs’ lawyers with lawsuits against cellular carriers.
Strigl said the change is being made to adapt policies to customers’ needs. “We believe dissatisfaction with flat early-termination fees is tarnishing the entire industry,” he said. “Verizon Wireless has the most loyal customer base, as well as the highest ratio of local number portability port-ins. We also know that the few customers who leave us often return. We will work even harder to continue to deliver the best network and the best service, so customers won’t want to leave us in the first place. That’s what competition is all about.”
Strigl remains the great disrupter of the cellular industry. It is not the result of anything fancy, but rather a dogged dedication from the start to service quality and the associated marketing message that the consumer comes first. It has worked brilliantly for Verizon Wireless, the second-largest U.S. cellular carrier. No. 1 Cingular Wireless L.L.C., No. 3 Sprint Nextel Corp. and No. 4 T-Mobile USA Inc. also play the consumer card. Verizon Wireless simply does it better—because it can. What is good for consumer is good for Verizon Wireless. Strigl has leveraged it to the hilt.
Strigl has made a career of making the ground shake at Yankee Group conferences. It is the forum he used in past years to announce Verizon Wireless would embrace local number portability and would not participate in a wireless directory. Verizon Wireless is the only national wireless carrier to support state legislation banning handheld cell-phone use by drivers, though Cingular’s teen-driver safety campaign is arguably more effective in saving lives.
Verizon Wireless’ new policy, dubbed the Worry Free Guarantee, gradually will reduce the amount customers would owe for breaking their contracts before they expire. The new policy will apply only to contracts signed or renewed after the policy is implemented, said Strigl.
The Worry Free Guarantee also includes e-mail notifications of price plans that better fit customers’ needs and other features. Customers with a $50 or higher price plan can upgrade their primary line handset after one year at current promotional prices and conditions, and the carrier will continue to offer free phone upgrades every two years. If a phone fails outside of warranty, the customer would only be responsible for $50 of the replacement cost. Customers also can store their contact list on Verizon Wireless’ network for free to provide a backup in case a phone is lost or stolen, or when customers update to a new handset.
Analysts noted the changes should add to Verizon Wireless’ already sterling pro-consumer perception.
“I like Verizon Wireless’ approach because it combines loyalty programs that serve as a protective coat of sealant on the carrier’s already loyal base, while the ETF pro-ration could open the floodgates of churn for competitors if commercial and/or regulatory pressures force them to follow suit,” said Adam Guy, director of Compete Inc.’s wireless practice.
Guy added that Compete’s research shows that rebates and handset subsidies are as effective as incentives that get more attractive the longer a customer stays with a carrier in mitigating customer churn.
Sprint Nextel, which recently increased its ETF for its CDMA customers from $150 to $200, said it has no plans to alter its current ETF policy, while Cingular declined to comment on future plans. Spokeswomen for the two operators said their companies also have strong consumer programs to help individuals pick the right service plan, maximize their voice minutes and accommodate buyers who return phones and discontinue service after an initial period.
T-Mobile USA did not respond to a request for comment.
While Verizon Wireless’ new ETF policy likely will put pressure on other national carriers to follow its lead and could lure undecided or dissatisfied customers its way, Strigl might have done competitors a huge favor.
If Congress and the Federal Communications Commission come to believe cellular carriers are truly serious about addressing consumer complaints, they may be more willing to give industry regulatory and legislative relief it has been seeking in recent years.
Indeed, Senate telecom reform legislation would expand federal pre-empt of state regulation. A 1993 law forbids states from regulating rates or market entry of wireless carriers, but leaves to states jurisdiction of other terms and conditions. The telecom bill championed by Senate Commerce Committee Chairman Ted Stevens (R-Alaska) would repeal the “other terms and conditions” provision reserved to states, and put the FCC in the job of policing industry. But there is vehement opposition to expanded federal pre-emption from states.
Elsewhere, the mobile-phone industry is awaiting an FCC decision on a request to declare state regulation of ETFs off limits to states. Meantime, an ETF class-action lawsuit is proceeding against wireless carriers in California state court. RCR
Managing Editor Dan Meyer reported from New York City and Copy Editor Kristen Beckman reported from Denver.
