The Verizon Wireless “Convenience Fee” and the End of Capitalism as We Know It

January 1, 2012 § 9 Comments

The concept first hit my radar when the “profit challenged” airlines decided to offset their personnel costs by imposing baggage fees, charging up to $50 to stow and deliver them.  Travelers complained, and the media had a field day – how dare they charge us!  Airlines held their ground (with the exception of Southwest, which never initiated the fees), and after the latest wave of bankruptcies, the charges have contributed to the restoration of industry profitability.  Then several banks (particularly the large, publically traded ones) announced that, in response to new regulations that restrict the profit they can make on electronic transactions, they would levy new monthly fees on debit cards.  Never mind that customers always had the option to do their banking elsewhere, including many community banks and credit unions.  The well-intentioned media and special interests came to the consumers’ aid once again, and rather than continue to face the negative publicity onslaught, most, if not all of the banks, relented.  No profit for you!

And now this.  Three days ago, Verizon Wireless (VZW) disclosed that customers who chose several bill payment methods (including phone and Internet) would be assessed a $2 “convenience fee” per transaction.  Customers who chose alternative channels (such as snail mail or online bank bill pay), or who signed up for VZW’s auto-pay feature, would avoid the fee.  But within hours, the media and special interests arrived on the scene again; this time joined by the FCC, which threatened an investigation.  And like the banks, VZW relented within hours.  What if VZW had simply discontinued its higher cost payment options – would it have faced the same ire?

So what’s the message here?  Are companies supposed to feel ashamed or immoral for making a profit, or for increasing them, by charging a fare rate for the services they provide?  In a competitive, capitalist market, is it not necessary to continuously innovate and to seek new ways to improve the amount and quality of the services they provide, and as these enhancements contribute their cost basis, are they not entitled to pass along these costs to their customers who are willing to pay?  After all, these are for-profit enterprises, aren’t they?  And — rhetorical question alert — don’t customers always have alternatives to paying these fees, including:

  • Comply with the conditions for “free” (such as with VZW’s free bill payment options)
  • Switch to a different provider
  • Stop using the service

What, suddenly it’s our right as citizens to have wireless service, and even more so, wireless service without extra service fees?  Since when is profitability such a problem?  For those who cling to the “greater good” argument, how would they respond to VZW’s (and all companies’) lesser ability to hire new workers without continuous profit growth?  I’m sure my assumptions are flawed, but for simply math, let’s assume 20% of VZW’s 100M customers use one of the implicated bill payment channels, and that VZW makes as much operating profit on the “convenience” fee as Verizon does overall.  On that basis, VZW could afford to hire an incremental 1,800 employees earning the median U.S. household salary, on a fully loaded basis.  If these employees helped create more growth for the company, VZW could hire even more.

Don’t get me wrong – I have no problem with consumers in a competitive, free market taking their business elsewhere, or in the case of Verizon, avoiding fees all together by complying with any of the company’s free options.  But when advocacy groups, the media, and regulators pile on together, and create the impression that the company has attempted some moral misdeed, well, that’s where I draw the line.  Come to think of it, I’m not even clear to what extent the customers themselves were even bothered by VZW’s fee — with all the noise coming from other, more organized groups, we never even got the chance to hear from them directly (other than a certain number of Tweets from some of the more vocal among them).  With only hours between the announcement and reversal of the fee, I’m not convinced the average VZW customer even had a chance to learn about it, let alone to consider how they felt about it!

Look, I know my rant may be unpopular.  I’m all for consumers making their preferences known, and even better, taking action with their wallets.  In a competitive market, this works especially well, and we have several layers of government and special interests to ensure competitiveness.  But when a business in a competitive market is vilified for imposing fees, especially when it gives customers a free alternative, I just don’t get it.  Healthy, growing businesses hire people, give raises, and pay taxes.  Isn’t that important too?

Taken to the extreme, I can see this slippery slope gaining momentum, and before you know it, our economic machine could edge its way closer to the European model, with heavier regulation and less commercial fluidity.  Even if this doesn’t occur through formal methods, it could happen through PR pressure applied by special interests or individuals in high places with “an axe to grind”.  But with many Euro Zone economies presently at risk of default, it’s hard to make the argument that their model is more desirable.  I’m happy sticking with good ol’ fashioned, American capitalism, if you please.

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