California judge rules Sprint's early termination fees illegal
A judge in California has ruled that Sprint Nextel's early termination fees are illegal and said the wireless operator should pay back $18.2 million in collected fees to consumers, a decision that could help sway decisions on similar cases throughout the country.
The preliminary decision released earlier this week is a major blow to Sprint and to other phone companies in their battle to defend themselves against angry consumers who say the fees imposed on them when they leave the companies' services are unlawful.
Verizon Wireless, which was also being sued in California, has already settled its case, agreeing to pay $21 million to settle all claims against the company. And after the decision against Sprint, there's a chance that cases against T-Mobile and AT&T could also be settled.
Early termination fees have been around almost as long as cell phone service. Wireless operators impose the fees, which can be as high as $200 per line, on customers who cancel service before their contracts have expired.
Phone companies say they must impose these fees to recover the cost of subsidizing handsets and for guaranteeing low monthly service charges. But consumer advocates don't buy that argument, and they say the fees are excessive and restrict customers' ability to switch services.
Lawsuit divided
Cell phone users fed up with these fees took their complaints to a California court and formed a class in a lawsuit against the four major carriers in 2006. The court separated the cases and has been dealing with them individually.
Sprint initially won the first battle in its courtroom war. Alameda County Superior Court Judge Bonnie Sabraw had further split the case leaving a jury to answer the question of whether customers had in fact broken their contracts with Sprint. In June, the jury found that indeed customers had broken their contract with Sprint. The jury found that Sprint customers had paid $73.8 million in early termination fees, while the company had lost $225.7 million.
But it was the judge, herself, who decided whether or not the contracts were even legal. And earlier this week, Sabraw issued a preliminary finding that stated these contracts were not legal. She ordered Sprint to pay $18.2 million to customers who had already paid these fees. And she ordered the company to stop trying to collect the $54.7 million from other customers who haven't yet paid the charges they were assessed.
But it's still unclear if Sabraw's preliminary ruling will stand. Both parties in the suit have an opportunity to file additional arguments to sway the judge before she issues her final opinion.
"We are disappointed by the judge's tentative decision," Matt Sullivan, a spokesman for Sprint said. "But we are now focusing on our response to the court."
Legal experts say that even if she stands by her initial opinion, it's likely that Sprint will appeal the decision.
Sprint may also get relief from the federal government. The Federal Communications Commission is currently considering a proposal by chairman Kevin Martin, which would give the FCC authority to regulate these fees. It's also unclear how a move by the FCC might affect the current litigation.
In June, the FCC held a hearing in which unhappy customers and consumer advocates railed against the companies for their business practices. Chairman Martin said he believed the fees were excessive.
But Martin's proposal could retroactively exempt carriers from legal challenges at the state level. And in this case, it could potentially even void any decisions handed down in California.
Consumer advocates agree that something needs to be done to protect consumers from these fees. But Jay Edelson, a managing partner at the law firm KamberEdelson headquartered in Chicago, says that even if the federal government regulates the fees, wireless operators should be held accountable. Edelson, whose firm has represented clients trying to reclaim fees paid for erroneous charges on cell phone bills, was not involved in the early termination fee cases, but he has been watching the outcomes closely.
"Early termination fees are hurting consumers and they're illegal," Edelson said. "If the federal government takes jurisdiction and preempts states' authority, then there should be a federal law that replaces it and protects consumers."
Wireless operators say they are adapting their practices to customers' concerns, and they've begun adjusting their fees to prorate them so that customers who terminate later in their contract pay less. Verizon Wireless was the first to offer pro-rated early termination fees. And now AT&T and T-Mobile offer prorated rates. Sprint Nextel said it will offer prorated fees later this year.
Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie. 
All kidding aside, those termination fees are really high, but I'm curious as to what law they violate. The consumers should have known about the terms before signing the contract. Early termination fees are nothing new. So why are cell phone contracts any different?
Bush will push, and congress will go along with a retroactive immunity for the telecoms.
The fees will stand
Cell Phone is a utility, no longer a luxury item and hence the Government needs to ensure that customers have access to good service all the time and can move between carriers. The number portability was supposed to fix this, but carriers instituted 2 yr. contracts. This is highway robbery.
I bought an iPhone (First Gen.) for $499 and signed the ATT contract. ATT did not susidize that phone in any way. I used the ATT service for about 5 mos. after which I decided that the quality was much better with T-Mobile and ATT did not even work at my new work location. ATT refused to acknowledge the fact that for 9 hours in a day my phone was uselss. I had to move to T-Mobile and I paid $175 early termination fees... I ask you.. What did they do to deserve that Early Term. fees? They did not subsidize the handset! Their service was not as good. Their whole motivation was to lock me down for as long as they can so they would not have to invest in improvements.
Three weeks later..... still crappy service, we still have to go outside and stand in the street to have a conversation with our relatives because we get NO SIGNAL in our home..... and we are in an area (WELL within) that we should be able to stand in a aluminum BOX and still get service according to AT&T's own maps.
No, the problem is as fangodango said: AT&T is taking all your payments for cell phone service and NOT improving their service at all or doing routine maintenance.
Time for AT&T to be sued and ONCE AGAIN broken up, because they have gotten to the point where they are that 'dirty' word: monopoly.
Just some questions that people should ask before making derogatory statements like what strykernyc made.
I have had terrible customer service with sprint from being lied to by sales reps (or at the very least provided with severely incorrect information that they thought was correct) to playing the "hold please while we use the magic 8 ball to come up with a solution to your problem"
The only reason that I haven't switched up to this point is that they're holding two $200 termination fees over my head on two phones that I bought at cost--no discount at all.
28 days and counting...
I don't mind if the barrier to entry is lowered to $10,000 but right now in order to operate a wireless provider like the scale of ATT and Sprint, you need at least $4B. The spectrum needs to be purchased from the FCC. If this is eliminated, yeah, when there's competition, these providers won't have the capability to lock a consumer to a phone for a cell phone service. In other word, with competition, the phone consumer buys will work with other cell phone service, right now, that's not happening because of lack of competition.
The fact is that some of these people were conned into signing on the dotted line by the people at these stores and by Sprint/AT&T/whatever.
Just like other people are conned on an everyday basis, and we don't blame them and actually ARREST the people who conned them.
but for the time being, I encourage everyone who is unhappy with Sprint to Dump them and contact Scott Bursor to avoid early termination fees... good luck all
sprint suuuuuuuuuucks
These fees affect the broader wireless earnings reported to shareholders... not just the fees. These fees provide an accounting basis for recognizing maximum monthly phone revenue as early as possible on those plans under contract. Without the fees, phone companies may have to write down bad debts earlier, and not recognize as much monthly phone bill revenue at the earliest moment possible.
Also, I never opt for the so called "free phone upgrade" at the end of the term. This just traps you into 1 or 2 more years. Bottom line is, the carrier knows that you will spend more on phone calls, fees, and features over the course of contract so as to make that handset cost negligible. I buy my phone outright without any contract.
All that said, early termination fees need to be made more reasonable, and people just need to pay for their handset. And by the way, that handset should be unlocked to be used on any network,. That is the real issue. I can move my number, but not my handset? What is that?
The thinking at the time was that "bundling" distorted the market, distorted the consumer's ability to understand the true cost of the hardware and service. Unfortunately, eventually California knuckled-under and joined the rest of the states.
Clearly if people want to do away with these fees (as I do), they should not expect carriers to be giving away free or subsidized hardware as well. Just like I'm perfectly willing to pay satellite radio to give me superior service and freedom from on-air advertising, I am perfectly willing to accept potentially higher costs for hardware in order to free us all from the yoke of being married to a service provider.
I'm a Verizon customer and to be honest these days I have little reason to switch as the service is excellent and they treat their customers like royalty. But neither do I enjoy being held over a barrel of contractual obligation to any company just because I want to add a line of service.
The only thing that they are doing is gouging the American consumer who is STUPID enough to allow them to get away with it.
Two problems with your comment:
1. Anyone can make an estimate. That does not make it true. Only Apple knows what it really costs and they aren't telling. Fifty is probably the lowest you could find, which just means it's more likely to be wrong.
2. Apple is making a nice profit on the phone from the carriers, so yes the carrieres are subsidizing the phone. The 3G one anyhow.
IF all carriers HAVE the early termination fee and we live in this world where a cell phone, as some other reader said, is a necessity, at some point we have to sign up for one plan with one of the carriers.
I can olny hope that soon enough this fee will be illegal all over the country for all wireless carriers.
Imagine what a total "disaster" this might cause, something like: lower customer frustration, harder work on quality on the carrier's part, ONLY happy cutomers will stay with a specific carrier otherwise they would switch MUUUCH often thus increasing the wireless maket dynamics, and in the end MORE happy PAYING customers!
Let's hope that enough bright minds in this country do the right thing.
2. No carrier has anyone over a barrel or with a gun to their head. Don't want a contract? Buy the phone outright. Can't afford that? There are options: ever heard of prepaid wireless?
3. As for the 1st gen iPhone, it's really too bad that AT&T used the price points they did. But it's even worse for people to whine about it after the fact: you knew the deal going in, and the first adopters or exclusivity-seekers usually always pay a premium.
Ignorance and/or an inability to play by the rules set forth doesn't make things unfair, so quit crying already!
which is exactly what I am doing...
email me at heykalindi@gmail.com to get in...
I know, what is all the complaining about!! bell, rogers, etc. it's all $400, $200 is nothing! why can't a Canadian judge do this (A) :)
The iphone is the ONLY one that eclipses that, and not by much.
The court+gov+dmv it's all a big scam..... and we still have to pay the fees.
Go fk urself judges...
- by ittesi259 August 1, 2008 8:22 AM PDT
- FYI, if your celebrating this and plan to dump your cell without paying that fee.....and you're not in California, this whole thing doesn't apply to you. That was a state judge, not a federal judge.
- Reply to this comment
-
-
- by heysprintsucks October 25, 2008 9:16 AM PDT
- yup, but the same lawyer who won that case, is now about to file another suit in EVERY STATE for the exact same reason - EARLY TERMINATION FEES ARE ILLEGAL
-
-
Showing 1 of 2 pages (52 Comments)