July 29, 2008
Washington D.C. – Wireless phone consumers won a landmark victory Monday when a California court ruled that early termination fees charged by Sprint Corp. were unlawful and ordered the company to pay $73 million in damages.
The decision comes as the Federal Communications Commission is considering an industry-sponsored proposal to take away state authority over early termination fees, an action which would effectively short-circuit similar ETF lawsuits and other state level regulations and enforcement against wireless phone companies. Several ETF lawsuits are currently pending in state courts.
“With this Sprint ruling, it would be unjust coordination with the industry if the FCC were to take away a consumer’s legal remedy against the unfair practice of ETFs,” said Chris Murray, senior counsel with Consumers Union.
Sprint and other wireless companies have long contended ETFs are necessary to recoup losses they claim to have incurred from providing free or discounted phones to customers when they sign up for long term contracts. However, research that became public during the Sprint lawsuit showed the actual phone subsidies paid by wireless companies average only about $14, nowhere near the ETF penalties, which range from $150 to $250 per phone line.
The California decision found these fees are in fact used to lock customers into long-term contracts, preventing consumers from opting for a different provider at any time.
“This is a huge victory for consumers,” Murray said. “Not only did this case generate an extensive record showing that these fees are not really used to subsidize wireless phones, but are instead simply used to lock consumers into contracts. Contract law says that’s illegal. Let’s hope the FCC doesn’t turn around and give the wireless industry a get out of court free card.”
A similar court case brought against Verizon Wireless was settled out of court earlier this month with Verizon agreeing to pay $21 million.
“Both the Sprint and Verizon cases illustrate that these penalties as currently structured are illegal–they harm both consumers and competition,” Murray said.
Chris Murray, 202-462-6262