Area Man Pays Twice for the Same Cell Phone

Area Man v. Verizon II - a re-match of the mis-matched. You may pay twice, too, the next time you upgrade.

(Blogger's Note: See that disclaimer over to your right, under "Welcome to Our Readers." This post reflects the views only of the author, not of the law firm or its clients.)

A few days before Christmas, my cell phone stopped working. It was almost 11 p.m., but Verizon tech support promptly answered my call (really). A friendly and helpful woman with a clacky keyboard narrowed the problem to my SIM card. She gave me the address of a Verizon store near my home that would replace the SIM card for free.

The next day the store was crowded, but they took care of me quickly. Another friendly and helpful woman, with amazingly intricate decorations on her fingernails, re-diagnosed my problem as a bricked phone. I had thought it was fully insured, but it turned out the insurance did not cover failing to place and receive calls. Who would want that? The woman offered to sell me the next-up model of my present phone for nothing down and so much per month.

Let's pause here. For years I have been paying Verizon $215 a month for two cell phones, unlimited voice and text on both, and 6 GB of shared data between them. (Yes, I know you have a better deal, and no, I don't want to hear about it.) The other phone belongs to my daughter who is a stand-up comic in New York and occasionally models for book covers, activities that consume surprising amounts of data. We both like shiny new phones, and we both upgrade regularly. Verizon includes most of the cost of the upgrades in the monthly bill. Assuming they finance $500 for each of our phones over two years, I figure about $45 of the total monthly bill goes toward paying off the phones. You can do the calculation here. That's why Verizon insists on a two-year contract - to make sure they get fully paid back - and why they will charge an Early Termination Fee (ETF) if I leave the contract before the two years are up.

A lot of people seem not to understand how this works. They think a $700 iPhone costs just the $200 they hand over up front, and don't realize part of their monthly payment goes to paying down the other $500. Verizon probably has the truth somewhere deep in the paperwork, but otherwise appears willing to let the misconception stand.

This means that the monthly rate should go down by $45 after two years, when the phones are paid off. Just kidding. Of course Verizon keeps the rate the same. But hold that thought.

Back at the store, admiring my shiny new phone, I learned Verizon has changed how it does business. It no longer subsidizes the phone as part of the service contract. Now it handles the phone purchase as a separate transaction. I pay for the service for as long as I use it. But I pay for the handset only for two years, and then stop.

That's good, right?

It would be, but for one fact: the service contract remains at $215 a month. That amount is still big enough to include a subsidy for the phones - even though I am now paying for my phone separately. So I am paying for that phone twice. At the end I will have paid $1,000, plus interest, for $500 worth of phone. The next time my daughter gets a new phone, I will also pay twice for hers, and Verizon will be pocketing an unearned $45 each month.

But wait, you say - I still have a few months to run on my old phone, so I really am paying for two. True, if you really think the monthly service rate will do go down when the old phone is paid for? It never has in the past.

Or, you say, if I don't like the deal I can leave Verizon and go to another carrier. The market is "vibrantly" competitive, according to the cell phone trade association. But changing carriers would entail paying Verizon hefty ETFs for both lines. I am locked in to a bad deal.

In all fairness, when I expressed my displeasure at the store, the fingernail lady called over a FIOS guy who both increased my home Internet speed and cut that bill by $20, so I actually came out a little ahead. Of course I am a Trained Professional who knows how to raise my voice in a cell-phone showroom full of holiday shoppers. But that should not be necessary. Call me naive and old-fashioned, but I think any customer should get reasonable treatment up front without having to ask for it.

The FCC does not get involved in cell phone pricing, on the theory that the market is sufficiently competitive not to need regulation. In practice, though, nothing stops Verizon from charging me anything it wants, up to the point where I'm willing to pay the ETF to get rid of them. Maybe that's in their DNA. Verizon traces its direct ancestry back to the old AT&T monopoly phone company, which had a reputation for not caring much about its customers. Their prices were high, in those days. But at least you paid them only once.