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AT&T to prorate cancellation fees

AT&T is trying to be more customer-friendly by prorating cancellation fees and doing away with automatic contract extensions for its wireless service.

AT&T wants to be more consumer-friendly.

On Tuesday the company said that it will prorate the $175 early termination fee it charges wireless customers who cancel their contracts based upon how much time they have left in their contract. This means that someone who cancels their service 23 months into a two-year contract will pay considerably less than someone who cancels the service after only six months. (All new customers are able to cancel their service with no penalty for up to 30 days after service begins.)

The company also said it will no longer require customers to extend their contracts if they make changes to their plans. AT&T's current policy automatically extends contracts for customers who change their service plans more than halfway through their contract term.

The prorated termination rates are still being worked out, but the new policy for extending contracts will take effect in November, the company said.

AT&T spokesman Mark Siegel said the changes were prompted by customer demand.

"We've been listening to customers," he said. "And they all tell us that they don't like one-size-fits all policies when it comes to early termination fees or service contracts."

These policy changes come at a time when Congress is looking more closely at the industry's consumer practices. After the much hyped launch of Apple's iPhone, which is exclusively available through AT&T, some Congressional leaders expressed concern that the industry has been too restrictive in its policies. The issue has also been highlighted by debates raging in Washington over how the Federal Communications Commission should auction a valuable sliver of wireless spectrum in the upcoming 700Mhz auction.

Last month, Sens. Amy Klobuchar (D-Minn.) and Jay Rockefeller (D-W.Va.) introduced a bill that would give subscribers greater freedom to leave cell phone carrier contracts before the agreements expire. On Wednesday a Senate subcommittee will hold hearings regarding consumer practices of the wireless industry, where the issues of early termination fees and automatic contract extensions will surely be discussed.

Siegel admitted that governmental pressure may have played a part in rethinking the company's policies.

"Our main focus is responding to our customers," he said. "But that's not to say there aren't other forces at work."

Whatever is getting AT&T to lighten its policies doesn't matter to me. I'm just glad that the company is making changes. I've always felt it was anticompetitive and unfair to lock customers into lengthy service contracts. And it made even less sense to me that cell phone operators could penalize good customers by extending their contracts because they upgraded their service plan. I mean does it really make sense that my two-year contract starts over because I am willing to pay more per month for my service? I don't think so.

Sure, mobile operators offer consumers subsidized handsets. I understand that they have to recover that cost. But is it really necessary to force someone who has had the service for almost two years to pay the same termination fee as someone who is canceling the service after only a couple of months?

In a free market, consumers must be able to have choice. And contracts with stiff penalties eliminate this choice and stifle competition.

So good work, AT&T. This is definitely a step in the right direction. Once operators truly compete on their own merits instead of relying on contracts to keep customers hostage on their networks, consumers will see huge improvements in price, quality of service, and the availability of new and cool handsets.