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In one of the most significant legal rulings in the tech industry this year, a Superior Court judge in California has ruled that the practice of charging consumers a fee for ending their cell phone contract early is illegal and violates state law.
The preliminary, tentative judgment orders Sprint Nextel to pay customers $18.2 million in reimbursements and, more importantly, orders Sprint to stop trying to collect another $54.7 million from California customers (some 2 million customers total) who have canceled their contracts but refused or failed to pay the termination fee.
While an appeal is inevitable, the ruling could have massive fallout throughout the industry. Without the threat of levying early termination fees, the cellular carriers lose the power that's enabled them to lock customers into contracts for multiple years at a time. And while those contracts can be heinously long, they also let the carriers offer cell phone hardware at reduced (subsidized) prices. AT&T's two-year contract is the only reason the iPhone 3G costs $199. If subsidies vanish, what happens to hardware lock-in? Could an era of expensive, but unlocked, hardware be just around the corner? It's highly probable.
Of course, the carriers aren't going to take this lying down. Early termination fees are seen as critical to business, so carriers are expected to look for ways to reclassify the fees (such as by calling them "rates," part of the arcane set of laws that covers the telecommunications industry). The industry is also pushing for the federal government to step in and claim oversight over the early termination fee issue, which would invalidate any state ruling. The FCC is generally more tolerant of such fees, though Chairman Kevin Martin has proposed a plan whereby the fees are decreased the closer you are to the end of your contract.
The FCC may also buy the argument that, since carriers are nationally based (and consumers can use their phones anywhere in the country), that a single policy should apply across the nation, rather than creating a patchwork of legislation that could lead to confusion and chaos caused by having 50 different policies.
Is the early termination fee dead? Not yet, but it's looking a little haggard.
 

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Thats awesome, I never liked the contracts. They must have seen this coming because recently they changed to no contract...allegedly.
 

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This is great.
So now the courts are mandating what charges a business can (after you sign a contract) impose. That sound you hear ins Mr. Jefferson rolling over in his grave.
 

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This is great.
So now the courts are mandating what charges a business can (after you sign a contract) impose. That sound you hear ins Mr. Jefferson rolling over in his grave.
From a business standpoint, I agree with you Koz. It is up to consumers to read the fine print - not ignore & then whine via the courts. That being said, the cynical side of me sees the cell phone companies using the concept of long contracts to trap consumers into a service nightmare - failing to provide the best quality of service and making the consumer essentially captive. If your company is so good, why should I have to sign a two year contract? Why don't you keep me as a long-term customer by providing excellent service??
 

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They are willfully signing a two year contract for the free or discounted phone. They should do some homework about the service before they contract for it.

Courts should not nullify a lawful contract that has not been violated.
 

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That being said, the cynical side of me sees the cell phone companies using the concept of long contracts to trap consumers into a service nightmare - failing to provide the best quality of service and making the consumer essentially captive. If your company is so good, why should I have to sign a two year contract? Why don't you keep me as a long-term customer by providing excellent service??
Exactly..and if I modify my plan for any reason over the phone they need not restart my two year contract...like they do...with out telling you. It is not always about the fine print.
 

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So if I want to get rid of my Nextel and have 9 months left on my plan I can do that without getting hit for cancelling.
 

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Until recently there hasn't been much in the way of good short term deals, I used to own a tracfone and paid way too much for way too few minutes. I'd much rather pay a fair price for the hardware and be able to drop my cell phone company if 6 months into the service I'm completely unsatisfied with the service I'm receiving in the way of reception, customer service, hidden fees. T-Mobile was terrible in my area when I used to have it a few years ago, but when I lost my cell phone they restarted my 2 year contract just because I needed to buy a new sim card at market value.. not a deal for signing back up, no free cell phone!:pinch:
 
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