California judge rules early cell phone termination fees illegal
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.
I’ve always had an issue with the way cell phone providers “trap” you into an agreement. If a better deal comes along, you should be able to take advantage of that, without recourse. What the hell do they have to lose besides a customer? The same goes for cable and dish providers. If they want to keep you, offer a competitive plan.
As far as locked-phones go, let them them keep it up. The competition will take care of that. Besides, contrary to this article they’re not subsidies. Do you know what it cost to make an I-Phone?
From GizModo.com, and this was in 2007.
So you thought the iPhone’s insanely high price tag is due to all the fancy technology inside? Not so, my friend. That touchscreen that everyone is popping tents over only costs $33.50, with the touchscreen controller adding a mere $1.15 to the price. In fact, Apple stands to make a healthy 50% profit on both versions of the iPhone sold, with the costs of the 4- and 8-gig models only running $245.83 and $280.83, respectively.
All I can say is “Verizon, can you hear me now?”
AWB
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Your saying the phone “only” costs about $250 for apple to make. Add a 25% markup for apple and you get $312.50. Take away providers ability to enforce contracts and they will need to get their 25% markup on top of their cost… now the retail price of the phone is $390.
I would rather have a discounted phone with the option of paying the early termination fee than be forced by some govt regulation to pay a markup on the phone whether i choose to stay with my provider or not.
My $.02,
Brian
What further irritates me is that the providers lock features of the phones designed into the phone by the manufacturer. My wife uses an unlocked Palm Treo given to her by Palm; I purchased my Treo from Sprint. Hers has many features that appear not to exist on mine, such as the ability to record and design your own ring tones.