California first to say cell phone termination fees are illegal
For anyone who has ever been peeved enough at his or her cell phone company to the point of wanting out of the contract, only to find out it would cost you a a small fortune to part ways, this one's for you.
In what is being called "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 California 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.
But as the story from The Associated Press points out, long-term contracts help phone companies reduce fees. The start asserts that AT&T's two-year contract is the only reason the iPhone 3G costs $199. If subsidies vanish, what happens to cheap phones? Phone companies say expenses will go up if the early termination fees are abolished.
So, early termination fee system isn't dead yet, but it's certainly being battered and bruised and this California ruling is certainly a blow.
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