Coaxial TV Cables are seen in front of AT&T and Time Warner logos in this picture illustration taken on June 13, 2018. (Dado Ruvic/Illustration/Reuters)
The Biden administration has proposed regulations to bar TV service providers from imposing cancellation charges on customers who opt out of their service mid-contract.
The U.S. Federal Communications Commission (FCC) announced the proposal against “junk fee billing practices” by TV service providers in a press release on Nov. 21. It targets two industry charges—early termination fees (ETFs) and billing cycle fees (BCFs).
President Joe Biden welcomed the move the following day.
“My Administration just announced a proposed rule that would ban early termination fees for cable and satellite TV. Companies shouldn’t lock you into services you don’t want with large fees. It’s unfair, raises costs, and stifles competition. We’re doing something about it,” President Biden wrote in an X post.
Early termination fees “require subscribers to pay a fee for terminating a video services contract before its expiration date, making it costly for consumers to switch services during the contract term,” the FCC said in a Fact Sheet.
Currently, cable and satellite providers often lock in new subscribers for a set duration, like a year, through promotional pricing strategies. Under such contracts, customers usually have to pay an extra charge if they end the agreement before the scheduled end date.
Terminating fees are typically calculated by multiplying the remaining months in a contract at the time of cancellation with a fixed amount, say $25 or $50.
“Because an ETF may have the effect of limiting consumer choice after a contract is enacted, it may negatively impact competition for services in the marketplace,” the FCC states.
If the rules come into effect, it would prohibit cable operators and DBS providers from “imposing a fee for the early termination” of a service contract.
The proposed rule also takes aim at the practice of billing cycle fees, which “require video service subscribers to pay for a complete billing cycle even if the subscriber terminates service prior to the end of that billing cycle,” per the FCC.
According to the recommendation, companies must provide subscribers with “a prorated credit or rebate for the remaining whole days in a monthly or periodic billing cycle after the cancellation of service.”
There are concerns that the proposition would harm TV operators as it eliminates sources of revenue at a time when millions of people are switching away from TV towards streaming.
In a September report, analysts at MoffettNathanson pointed out that cable and satellite TV companies lost 1.8 million subscribers in Q2, according to CBS News.
Promoting Competition
The rules stem from President Biden’s executive order signed in July 2021, which called for ending specific early termination fees.
“No one wants to pay junk fees for something they don’t want or can’t use. When companies charge customers early termination fees, it limits their freedom to choose the service they want,” said FCC chairwoman Jessica Rosenworcel.
“In an increasingly competitive media market, we should make it easier for Americans to use their purchasing power to promote innovation and expand competition within the industry.”
The proposal will be voted on during the Dec. 13 open meeting of the agency.
Junk Fees
The FCC’s targeting of cord-cutting fees is part of the Biden administration’s action against the so-called junk fees or hidden fees. In October, the U.S. Federal Trade Commission (FTC) announced that it was exploring a rule to crack down on such fees.
The FTC claimed that junk fees are “unnecessary, unavoidable, or surprise charges that inflate costs while adding little to no value … Companies often harvest junk fees by imposing them on captive consumers or by deploying digital dark patterns and other tricks to hide or mask them.”
In addition to the early termination fees charged by cable service providers, certain bank fees, surcharges on hotel stays, and extra charges for food deliveries are also seen as junk fees.
President Joe Biden announces new actions to protect consumers from hidden junk fees in the Rose Garden of the White House on Oct. 11, 2023. (Brendan Smialowski/AFP via Getty Images)
During a White House event last month, President Biden highlighted the issue of junk fees.
“Research shows that, without realizing it, folks can end up paying as much as 20 percent more because of hidden junk fees than they would have paid if they could see the full price upfront and compare it with other options.”
“If this proposed rule is finalized as proposed, the FTC would have the power to impose financial penalties on companies that don’t disclose their full upfront price and secure refunds for customers who have been defrauded by companies charging hidden fees.”
However, some experts are not convinced that eliminating junk fees would be a good thing for consumers. Amit Bhattacharjee, associate professor of marketing at the Leeds School of Business at the University of Colorado Boulder, pointed out that such fees are typically not a huge component of the price of a product and are only an easy political target.
Businesses incur numerous costs in their operations and “if you prevent them from charging fees to cover those costs, it’s not like you somehow eliminate the costs themselves. Companies still have to incur them,” he said, according to an Aug. 9 post published at the university website.
“But if they can’t selectively charge fees to certain consumers or in certain situations and have to lump them into one uniform, all-inclusive price, that price will inevitably be higher for everyone else. It’s hard to legislate away economic realities.”
The Epoch Times reached out to broadband associations, ACA Connects and NCTA, for comment.
