Terminate the early termination charges

Early termination charges are astonishing things.

On the one hand, ETCs are part and parcel of the telco sector in New Zealand. If you take up a service and sign a contract, you’re likely to get some kind of hardware for free or at a reduced price.

It’s not free, of course. If it’s a cellphone, the price of the device is built in to your plan and you pay for it for the duration of your plan. Sign up for three years and the cost of the handset is paid for many times over. You’ll never see that magic money when you’ve paid it off and your bill goes down in price.

Landlines also get their own ETCs relating to the hardware you get from your ISP. Typically it’s a modem or router so you can connect to the service you’re paying for.

Cellphones tend to cost up to $1000 (or more if you want a smart phone of course, as we all do) while routers are a tad less traumatic on the wallet, costing in the low hundreds.

Either way you’re likely to find your ETC is dramatically more than the cost of the device, and the reason is the telco is charging you for the lost earnings as well as for the hardware.

This is a nonsense and has to stop.

It brings to mind the bank break fee story that hit the press a couple of years ago. Banks are allowed to charge a reasonable fee (not really defined in the relevant legislation) for a customer to break the contract and move to a new provider. Kiwibank and the HSBC interpreted this as meaning it could charge a whopping great fee to cover lost earnings whereas some of the other banks chose to interpret it in a more user-friendly “we’ll cover the cost of admin” approach. Eventually the Commerce Commission stepped in to warn them about their approach and both banks paid off some customers who could prove they were affected.

Part of me says if you’ve signed a contract then that’s that, you’re in for the duration. Part of me also says charging too much for a break fee is anti-competitive and should be carefully managed.

Today in telco land we’re in the throes of rolling out the UFB and, at this point in time, not all the retail service providers are on board and selling service on it. That means customers who want to migrate from copper to fibre run into a problem: they may need to move to a new ISP and if they do so they’ll find they’re liable for ETCs.

In one business’s case, that amounts to $3500 payable before they can get access to the fibre network we’ve told them is so vital to their work.

That’s clearly not acceptable. We want the UFB to succeed, we want as many customers on board as possible and we want small businesses in particular to get stuck in. Having to pay this kind of fee because your ISP doesn’t offer fibre is counter-productive.

Besides, as the business in question says, while the ETC might stop them moving today, the minute the contract is done they will move to a new provider regardless of the offer on the table from the current telco because of its attitude over this.

ETCs might seem like a good thing around the finance table but for a really customer-centric business they should be avoided at all costs. This industry is dominated by a massive amount of customer churn. The customer who leaves you today is quite likely to come back at some point and if you’ve treated them shabbily in the past, you’ve made it that much harder to win them back in the future.

By all means, cover the costs of the hardware and the admin, but trying to reclaim lost earnings is poor form.

The banks learned the hard way thanks to the Commerce Commission and we’ll be asking that ETCs be addressed in the minister’s telecommunications review. Hopefully we can get rid of this anti-competitive practice once and for all.