Yahoo:California judge rules early cell phone termination fees illegal.

one for the good guys!

 

I'm pretty satisfied with Verizon. Either way it's more of a hassle to jump from one carrier to another unless your current coverage absolutely blows I doubt this is that significant.

 

Now can they please do it for internet service?

 

You locked into a contract?
I thought they were all month to month

Rocket River

 

I don't see why it would be illegal? It's not like you're being forced to buy a phone. If you want a phone - and most of these phones are subsidized because they know you'll be a subscriber for x months - you agree to the terms. The terms included an early termination fee. I don't see where the problem is there?

 

Hmmm.

That means you could buy a 200$ iphone and then opt out of the contract a month later. I'm sure they would add a stipulation that if you get the iphone price reduction, you have to stay with atandt for a certain amount of time.

 

Sprint apparently doesn't do it anymore, but for a long time, any time you made any change in your service at all, you extended your contract another two years (from the date of the change).

There's also the issue that the early termination fee never gets smaller. The fee to cancel with 24 months left is the same as if you cancel with two months left.

When I got satellite service, they had a cancellation fee of $240, but it went down $20 each month I had the service. So, if I canceled with two months to go, I only owed $40 rather than the whole $240.

 

Yep about half way done in a year long contract w/ speeds slowly decreasing.

 

From the article:

"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."

So the ruling is limited to California, unless other states pass similar laws. The article goes on to say that the FCC or another Federal body may impose a unified policy across the states. In fact it mentions a proposal from FCC "Chairman Kevin Martin ... whereby the fees are decreased the closer you are to the end of your contract."

 

The phone companies have profit goals - expectations to make. If the cancellation fee is part of their financial model and that is lost, then they will have to recoup elsewhere.* Overall, there will be more freedom of movement if it becomes a national trend - law, but not necessarily a reduction in costs to the consumer.

If the companies don't make the expected profits, the shareholders are unhappy and will sell the stock and/or seek management change at the executive level. The executives have both their jobs and likely stock options on the line and financial underperformance by their company is to be avoided.

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* Whether they collect funds from early cancellations or the consumer stays with their phone company because they don't want to pay the fee, it is likely a part of their financial business model.

 

If this law applies equally across the board, what will likely happen is the better mobile phone companies will benefit at the expense of the poor ones. Verizon & AT&T (who have the lowest "churn" rates) will benefit at the expense of Sprint/Nextel (who has the highest churn). It's hard to say how T-Mobile will fair. I'm not so sure cancellation fees make up a significant part of revenues so (1) the lost revenues from this may not be made up at all and (2) this ruling will affect consumer choice and NOT costs.

Bottom line: I bet Sprint/Nextel starts bleeding customers even faster and ends up being a takeover target by one of the other 3. The long term net effect could be increased consumer cost because a competitor will disappear. But in the industry, it seems like T-Mobile sets the low cost baseline more than Sprint/Nextel.

I wouldn't be surprised if this ruling is overturned or if the mobile companies find some way around it.

 

I didn't mean that the cancellation fees are necessarily a significant revenue generator, but the implied threat of the fee keeps people locked in with a company longer than if there was complete freedom of movement without penalty. Of course the companies would rather retain a customer than to have them pay the cancellation fee and escape to the competition. Getting a lump sump payment from the customer to break the contract looks nice in the financial period that it occurs, but it hurts the future earnings stream.

For a company like Sprint/Nextel, retention is vital because the US cell phone market is maturing and growth will need to start coming from other companies because the pool of those without a cell phone is definitely getting smaller.

As you pointed out, Sprint/Nextel has the highest churn rate of the major companies and by letting people exit early without a penalty, they would become more desperate than they already are. There has been change in the Sprint management structure within the past year because of poor performance.
Sprint Nextel CEO Steps Down
Gary Forsee stepped down as chairman and chief executive officer of Sprint Nextel Corp. as the wireless carrier warned investors that it continues to lose high-value subscribers and won't meet its previous financial targets.

Mr. Forsee's resignation came days after news broke, in The Wall Street Journal, that the board had a search under way for a successor. That made it impossible for him to continue working, according to one person familiar with the situation. "His ability to function was undercut by events," this person said.

Mr. Forsee didn't respond to phone and email messages.


If Sprint/Nextel is unable to turn their situation around and gets bought out by a competitor, then consumers will have fewer choices when choosing a cell phone provider and the companies have less need to be aggressive in pricing their plans.

 

if you think this is a good thing for you think again ...

you are not going to be getting free phones any more. Even the free ones retail for over $250 without a contract.

 

If T-Mobile remains a hungry and viable 3rd place competitor over the long term and isn't stupid enough to be the one who buys Sprint/Nextel, I think pricing will be OK. The viability of WiMax will have a lot to say in this matter. As a consumer, I hope it's a grand slam! As you obviously already know, if Verizon and AT&T become too powerful, all of us will suffer. They are scary and are fast becoming the modern-day equivalent of the old regional bell companies that stifled innovation until digital mobile phone service exploded on the scene.

 

So what? The net effect won't be higher costs, it's that the cost will be distributed differently. The ultimate goal is being able to take your phone with you from mobile company to mobile company whenever you want and this is one small step in that direction. It will be a few years until that happens. One pebble doesn't make a driveway but it's a start.

Think about how you can switch wired home phone providers anytime you want, without getting new phones and (usually) without a stupid early termination fee. Wireless phone service will get there eventually; the sooner the better. That's the long picture.

 

A_3PO,

Yes, the wireless spectrum topic is interesting.

The 4G tech of WiMax and LTE should be good for the consumer because it will provides more competition in the data communications market. Even though Sprint is the weak sister compared to AT&T and Verizon, having Intel and Google allied with Sprint does bolster their prospects.

Sprint revives WiMax network plan
DALLAS - Sprint Nextel Corp. will combine its high-speed wireless business with Clearwire Corp., creating a $14.5 billion company and reviving plans to build out the first national WiMax network.
more stories like this

WiMax is a standard for wireless laptops and mobile phones that can transmit data up to five times faster than today's technology. Intel Corp., Comcast Corp., Time Warner Cable Inc., Google Inc., and Bright House Networks will invest $3.2 billion in the venture, the companies said.

Sprint chief executive Daniel Hesse teamed with wireless pioneer Craig McCaw to gain a leg up on AT&T Inc. and Verizon Wireless by offering faster service. The venture's funding will help expand network coverage to as many as 140 million people by 2010, letting Hesse scale back spending at Sprint after losing more than a million customers last year.

"The major issue for Sprint was the money," ABI Research analyst Nadine Manjaro said. "If Comcast, Google, and Time Warner invest the money, you'll definitely see it taking off."

Sprint fell 3 cents to close at $9.16 yesterday. Clearwire closed at $16.22, down 24 cents.

Sprint and Clearwire will be first to market with a faster network technology by enlisting companies such as Google and Intel as backers to take on AT&T and Verizon, the two largest US mobile-phone companies. Sprint is the only one of the three carriers to commit to the WiMax technology, which risks limiting the standard to a smaller pool of users.

While AT&T and Verizon are backing a rival technology called Long Term Evolution, they say it may not be ready for two years.

"In terms of economies of scale for WiMax, Sprint's deal is the biggest deal out there," Yankee Group analyst Phil Marshall said in an interview from Boston.

WiMax offers wider coverage than today's Wi-Fi systems, which deliver Internet access to smaller areas such as buildings and parks. The standard is designed to carry data as fast as cable or phone line connections by making more efficient use of radio frequencies than existing technologies.

Arvind Sodhani, president of Intel's investment arm, initiated talks on the new agreement after a previous deal between Sprint and Clearwire failed, according to a person familiar with the matter. Sodhani was a board member at Kirkland, Wash.-based Clearwire, founded by McCaw, from August 2006 until last December.

For Intel, the world's largest semiconductor maker, WiMax is a way to entice consumers and businesses to buy new laptop computers. Intel has relied on earlier wireless technologies to spur sales of its Centrino laptop chips. The company has updated the Centrino products every year since their debut in 2003.

Intel, the largest shareholder in Clearwire with a 20 percent stake, will begin including WiMax radio chips in Centrino products in the second half of this year

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In regards to the posts by <I>RocketManJosh</I> and myself, we are trying to raise a cautionary flag because some in this Forum like to <i>have their Cake and eat it too</I>. Not nearly as bad as in BBS Forums that cater to bargain hunters trying to work every angle possible while shopping, but there is a hint of it here.

The current business model gets the consumer a cell phone at a discounted rate because of the long term contract. The cost of the discount is spread out over the life of the contract and the company has the chance to recoup their cost. If things change and companies no longer have faith that they will be able to recoup the discount on a phone, then the distribution - allocation of costs will change as you mentioned. An <I>unbundling</I> of the phone service and the hardware will be the result. <I>Unbundling</I> has happened in the past for IBM and AT&T, so it is a path that has been taken before.

 

Not anymore, Tmobile/Verizon/Altel, and I believe all of the carriers don't extend contracts when changing plans.

As for Early Termination Fee, Verizon and Alltel Prorate your ETF now, usually reduces it around $5/month. Usually in the end, you end up better off paying the $100+ to get out of a year plus contract rather than paying $30-50/month unless its an addon line for $10/month

 

That's probably more than a few years off. The technologies are too different right now, and I don't see companies switching technologies after they've built them up for so long. Of course you can carry your phone across carriers on a limited basis now if they're the same technology...but to be able to carry across the board they'd have to manufacture phones to be able to operate on both GSM and CDMA.