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Verizon’s Increased FiOS EFT May Violate Basic Contract Law

Posted on Jan 07, 2010

The Philadelphia Inquirer reported yesterday on Verizon's plans to double the early termination fees (ETFs) to $360 on their TV and Internet services.  This fee diminishes by $15 for every month that the customer stays with Verizon.  As noted in the article:

"Verizon has seen Comcast Corp. and other cable companies stealing back FiOS TV and Internet customers with steep discounts and offers to rebate the termination fee. . . .  The sharply higher fee . . . would make the rebate payments more painful for competing cable companies."

Naturally, consumers enter into a contract with Verizon and agree to use their service for two years.  In return, Verizon offers them discounts and deals for sticking with them.  Any early termination by the customer would then be seen as a breach of that contract, thus entitling Verizon to any damages that they may suffer as a result of that breach.  The contract itself can even set forth what those damages are in what is called a "liquidated damages clause."  However, as any first year law student knows, those liquidated damages must reasonably reflect the anticipated actual damages suffered by the non-breaching party.  Otherwise, it could simply be seen as a breach penalty and not be enforceable by the courts.

As with volume discounts, incentives for a long term commitment may well include a discounted monthly fee.  This is not uncommon; the fee may be $x if you go month-to-month, but if you commit to two years, it is $y.  Under that analysis, shouldn't the penalty go up and not down as time passes?  If you get the discounted rate for three months then jump ship, shouldn't you just be liable for the difference for those months?  This then begs the question of what damages does the ETF reflect?

The thext question is, does Verizon need to double its ETF to cover its actual breach damages or are they just creating a poison pill for Comcast and others to swallow as a disincentive for them to try and steal customers away?  If customers deserve choice, or are dissatisfied with Verizon's service, then they should be able to leave.  If Verizon's competitors are paying the ETF, then Verizon is being made whole, so where is the problem?  Have their actual damages upon early termination actually doubled, or are they just feeling the pinch of a competitive marketplace?  The FCC may well look into this (they are already scrutinizing a doubling of the ETF in Verizon's wireless division), but in the meantime, as Ricky Ricardo would say, I think Verizon has some 'splainin' to do.

Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.