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Judge Rules Sprint Termination Fees are Illegal

Telecom must pay millions in class action suit

By Martin H. Bosworth
ConsumerAffairs.com

July 31, 2008 

Alameda County Superior Court Judge Bonnie Sabraw ruled that the penalties were illegal under California state law. Sprint had argued that the termination fees should be counted as monthly rates rather than special charges, and that federal law governing telecommunication service rate charges should supersede California law. Sabraw found that Sprint did not sufficiently prove that the termination fees were rates, and rejected their argument.

"Sprint's term contracts gave customers lower handset costs and lower monthly charges in exchange for the term commitment," Sabraw wrote. "It is, however, not clear whether the ETF was a part of Sprint's 'rates' given that they were imposed at the termination of service and not for services provided."

Sprint has two weeks to issue a rebuttal to the preliminary ruling before it becomes permanent, and is expected to appeal, so customers shouldn't expect any refunds right away. But the decision is another nail in the coffin of the industry's usage of termination fees due to the precedent it sets.

Verizon Wireless earlier this month agreed to pay $21 million to settle its own class-action lawsuit over termination fees in California. Verizon agreed to the settlement less than a month into the trial, as industry observers speculated that the judge would rule against them.

An earlier class action in California, this time against T-Mobile, was cleared to proceed last year.

Change in the weather

Termination fees have become a symbol of customer frustration with wireless companies. The companies claim they charge the fees to subsidize lower costs of handsets in order to attract customers. Critics of the fees claim they are designed to lock a customer into a contract and prevent them from shopping for better service.

Mounting criticism of the fees has led members of Congress and the Federal Communications Commission (FCC) to consider legislation limiting or governing termination fees for cellphone, cable, and landline telephone contracts.

In an effort to avoid new regulation, all four of the major wireless providers--Sprint, T-Mobile, Verizon, and AT&T--began prorating their termination fees and altering their contracts so customers could make changes to their plans without incurring new fees.

Verizon Wireless later partnered with the FCC to craft a national policy governing termination fees. Under the FCC-Verizon plan, termination fees would be further prorated and customers would have more freedom to change plans without incurring new charges. In exchange, the federal policy would preempt state regulators' ability to govern the fees, and any existing class-action lawsuits against the wireless companies would be thrown out.

The FCC-Verizon plan was criticized by consumer advocates as a giveaway to the wireless companies that weakened state authority.

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