Early termination fees on wireless contracts one step closer to termination
Filed under: Ripoffs and Scams, Technology
The little play on words is obvious. Consumers are just a little bit closer to being free of early termination fees on wireless contracts. A California judge ruled this week that it was illegal for Sprint Nextel to charge early termination fees, and they must refund over $18 million to consumers. The company must also stop trying to collect over $54 million in unpaid early termination fees from former customers.Of course, Sprint Nextel is going to appeal so we shouldn't get too excited yet. But this ruling is good for consumers, who are at the mercy of wireless providers who are looking for any excuse to get a little more money out of each of us.
The whole idea of an early termination fee is ridiculous. If you want to stop using our service earlier than you planned, you have to pay a couple hundred dollars. To not use the service.I suppose in theory you could argue that the fees protect the wireless providers who need to give consumers an "incentive" to stick with them. They might expand their networks based upon their number of subscribers, and if customers can come and go as they please, they could lose a lot of money on unnecessary expansions.
They also sometimes give free equipment or free minutes to entice customers to their services. The early termination fees help recover those costs.
On the other hand, consumers should be free to pick and choose their service providers. Why force customers to stick with you? Why not provide great service at competitive rates so that customers actually choose to do business with you? Wouldn't that be a better business model? And shouldn't free be free? If a company gives someone free stuff to try their service, and they decide they don't like the service or don't want the expense, shouldn't they be free to leave?
But apparently customer service isn't the main focus of wireless companies in the United States. It's much easier to penalize customers who try to find companies with better service and better prices. After all... how will wireless carriers keep their customers if they can't punish them for leaving?
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
Reader Comments (Page 1 of 1)
8-04-2008 @ 12:05PM
rick said...
Whoever wrote this is an idiot along with all of those consumers who get a $500 phone for free or at a significant discount and then leave their contracts after 6 months. The carriers have not even hit the break even point for bringing on a new customer much less recouped any of the subsidized portion of the handset cost at that point.
So now you are forcing the carriers to return to charging full price for handsets again. Nice trade off! There is a side to every story.
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8-04-2008 @ 12:42PM
Tracy Coenen said...
Hi Rick - Thanks for your insightful comments! Personally, I'd rather pay for the phone and then be free to use any carrier without the termination fees.
8-04-2008 @ 4:30PM
Dave said...
Cry me a river, you must work for the industry. Keep the service and products better than the other ones and you keep your customer base. Free market. Just like the oil bussiness. I suppose you are for high oil prices too?
8-04-2008 @ 12:13PM
Claudia R. said...
Yup, I got hornswaggled by the sales guy who told me sprint had no cancellation fee. $150 dollars later my final bill told the real story. After being their customer for YEARS, I switched. Apparently only a couple days short of my most recent 2 year deal...and yeah I got a phone, and then another and I have paid for roaming, and information calls out the wahzoo. Now I am with the new wireless people and don't cha know, I want out and this article gives me hope.
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8-04-2008 @ 1:26PM
bobbatola said...
Yes Rick, very insightful... Did you ever think that the cost of the phones would come down from the "full retail" value if they couldn't stick you for two years? It'll be free market again and we know what that does to prices.. We'll get both; freedom to choose a carrier when and how we want to and we'll still get inexpensive phones. Trust me..
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8-04-2008 @ 1:52PM
annettecmn said...
This is great news, though too late for me. I'm still in battle with my current provider over this--- I was charged for our 2 phones for termination because I hadn't paid the entire bill, prior to my getting very sick, hospitalized, and on complete bedrest. And they had no sympathy for the fact that their remaining payment wasn't on the top of my priority list. And when I explained and tried to pay it over the phone, I was told that I had to pay all of it, and then I would only get to have service for 1 phone! (I simply went online and paid what I owed previous to those lovely fees.) What slays me the most is that I have been with them for at least three full completed 2-year contracts prior... the last one being started 1-3/4 yrs ago only because the phone I had needed to be fixed to work, and they no longer repaired that model, so I had to get another (along with the new contract). What a crock!
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8-04-2008 @ 4:01PM
Clint said...
Hi Tracy, if that's your choice to pay full price for a phone, then that's your choice. But when you sign a contract to get the discounted headset, you should stick to it, an not complain when you're charged the ETF. Look at it this way, when you sign a lease on an apartment, or a car lease, a home security system or satilite tv service, you agree to pay an early termanation fee. You do so because the service provider have up front cost that goes alone with providing you with the good or service they are providing you.Now ou already know that if you break that lease on an apartment, you have to pay a fee. If you return that car before that lease is over, you pay a fee to do so. Same thing with the home security system an satilite tv, you pay a fee. That's in the contract, that no one forced you to sign. I recently bought the Samsung instint form Sprint. That phone retails for $479.00. I got mine for $129 for agreeint to a 2 year contract. I saved $350. Not Sprint let me have this new $479 phone for $129 an a $350 committment to me. If I was to break my contract today, all I would have to pay is the $200 dollar ETF. But would still have thier $479 phone, an all i'm out of is $329. Sprint ould still be out of $150. So as you can see as in most cases the Early Termanation fees don't cover the wireless providers losses on the headsets. Sprint made a committment to me, an I made one by signing the contract. That was my choice. If you want your freedom to chose what company you want to use, they you paid full price for your headset, an pay month to month, thats your choice. I happen to like my discount I got on my new Instinct. So now do you really think this judge would tell that apartment lesser or car lesser they didn't have to pay to abandom their apartment, or just drop the car back off at the dealership an not pay tthe early termernation fee. The main ones complaining about these fees, are the ones that don't like paying there bills in the first place. I hope you now see the wirless compaines point of view an my point of view now.
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8-04-2008 @ 4:50PM
Tracy Coenen said...
Hi Clint - Thanks for your insightful comments. As I said, I understand the how and why behind these fees. I just would rather pay for my equipment and then be free to use it with whatever carrier I choose whenever I choose.
8-04-2008 @ 5:49PM
Tom said...
Wouldn't it make sense to sell a phone independent of the service? That way, you can finance the phone and spread those payments over 12, 18 or 24 months. If you choose to switch to another carrier, simply pay off your phone and be done with it.
That way, everything is above board, and those who choose to keep their phones for an extended period of time no longer help finance the phone purchases of others.
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8-05-2008 @ 10:25AM
Richard said...
Clint's comments are quite correct. I am a wireless dealer and the fact is the carriers do subsidize the phones, and they do lose money on them if the contract is terminated early. If an individual wants to pay for their phone and go month to month, that's fine. They can buy unlocked phones, or refurbished phones that are available at cheaper prices. No if you make payments over a period of time you'll pay interest. On a two year lease you'll probably pay $700 for that $479 phone. Look around folks, Americans have departed from common sense when it comes to money that's why millions of people took out loans they should have known they couldn't afford and have collectively a couple of Trillion in credit card debt. The status quo in the wireless industry is is good, and very fairto consumers!. It keeps the costs of new phones phones low and new technology flowing, which makes for better handsets and features. The thing is, people believe that if the carriers stop charging early termination fees, that they'll somehow get out of having to actually pay for the phones they use. They already have the option to pay full price with any carrier, do they?
8-04-2008 @ 7:48PM
Clint said...
Everything is above board now. You know exactly what you're getting. Like I said I knew when I bought my Instinct last month, what the phone cost, $479. I knew that they would sell me the phone for $129. if I signed a 2 year contract. Now Sprint would have been happy to sell me that phone for $479. An I would have been free to leave when I chose to. But it was my chose not to do that, an take them up on their offer. An so have millions of others. An they paid there bill, a lived up to the contract they signed. Again that was mine an millions of other choice. But because a few thousand decide they don't want to live up to their oblegatitions, an contract they signed, which no one forced them to do in the first place, sue, thats the american way. This judge is headline grabbing, an for all practical matters, taking away the wireless companies choice, on the way they chose to sell there services. Thank God this lame brain Judge don't have the last word in this matter. FCC, please do the right thing.
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9-20-2008 @ 5:07PM
Richard said...
Right on Clint!
Your comments are quite correct. I am a wireless dealer and the fact is the carriers do subsidize the phones, and they do lose money on them if the contract is terminated early. If an individual wants to pay for their phone and go month to month, that's fine. They can already buy unlocked phones, or refurbished phones that are available at cheaper prices on the internet or even e-Bay. There is a huge market for nearly new cell phones. Blaming the carriers for consumer laziness just demonstrates bad faith. Tom's ideas isn't such a good one either. If you make payments over a period of time you'll pay interest. On a two year lease you'll probably pay $700 for that $479 phone. Look around folks, Americans have departed from common sense when it comes to money. That's why millions of people took out loans they should have known they couldn't afford and have collectively a couple of Trillion $$ in credit card debt. And they want to blame others for their decisions. It's like someone who is obese blaming MacDonald's for the fact they eat 4 burgers at a sitting. The status quo in the wireless industry is is good, and fair to consumers!. It keeps the costs of new phones low and new technology flowing, which makes for better handsets and features. Remember, the carrier's don't make the phones, they buy them from companies like Samsung , LG and Motorola. I think some folks have the mistaken idea that if the carriers stop charging early termination fees, that they'll somehow get out of having to actually pay for the phones they use. They already have the option to pay full price with any carrier, do they? And, there are many, many people buying on the secondary market right now.
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5-07-2009 @ 8:10PM
Matt said...
Absolutely, Richard just hit it right on the head. I'm an ATT employee, and while I know first hand how horrible a company it is to work for, I also know that contracts are a necessary evil in the wireless industry.
According to the most widely used statistics, it takes us about 13 months to see any positive revenue from a new subscriber (after the discounted phone, setting up the line, SIM card assignment, billing generation, overhead, costs of using the network, etc). We'll call it 12 months in the sake of fairness since I'm sure many people would object to this figure. These phones are not cheap. Our COST on the Iphone 16G is currently at $699...we sell if with new service for $299. Customer comes in and does a $39.99 rate plan with Iphone data package ($30), and ATT has to make that money up somewhere. Blackberry and other PDA's are the same deal. Not quite $699, but still extremely expensive to buy. For some reason the mass public seems to think that we pay pennies on the dollar for these phones and make money off the cost of equipment while screwing people into a 2 year contract....but that's just not the case. We LOSE money on the phones, and we're in the red for your first year of service with us.
Fact is Tracy, your prayers have been answered! You are more than welcome to walk into any ATT retail store in the country and lay down $550 plus tax for a Blackberry Bold w/o a contract. Its always been that way for every carrier except Sprint, but Sprint has always been the sneaky carrier that tricks people into extending their contract. This is why Sprint Nextel is on the verge of collapse and is trying like crazy to sell off Nextel to free up some cash. Tricking customers into staying with you is a horrible business model for any company, and we're seeing the results with Sprint. Gotta love a free market.
Fact is, ATT doesn't have to try to "trick" you into anything. ATT is the largest telecommunications company in the world, and they don't need to resort to sneak tactics to lock you into a contract. The option has ALWAYS been there to purchase your phone at full retail price with NO CONTRACT.....or take the discount and stay for 2 years. Either way, don't bitch about the ETF when you made the conscious, adult decision to take our money and sign on the dotted line. Life is full of choices folks, make yours and live with it.
8-05-2008 @ 1:29PM
Duane A. Webb said...
Long live the landline!!!!!
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8-09-2008 @ 5:01PM
Abed said...
HI all;
Here how it comes down to….. I have been in the business for quite a while. I think both sides have a legitimist argument:
1- On one hand if you really want to shop around and get your equipment at a deep discount (knowing that it cost a whole lot more if you bought outright) I see you are obligated to sign a contract so the provider can recover the cost of discounted equipment.
2- On the other hand if you decide to pay for your equipment the full price then there should be no contract what so ever.
I also agree if the equipment wasn’t discounted by the provider (so they can lock their customer into a two year contract) I think the equipment prices will drop significantly because of completion (after all the Suggested retail prices that the provider put on the hand sets is outrageous) If you do your homework and shop around sometimes you can get the same equipment for less than ½ price.
The cell phones had become a necessity in people’s life just like your electric or water provider for your home. I am of the opinion that you should pay for your equipment upfront the full price and depending on your credit worthiness, you either can be trusted on paying your bill at the end of the month or pay in advance (like Metro PCS) or you have to leave a fully refundable deposit if you decide to quit and your bill is paid. I think all these provider should learn something from Metro PCS even though I am not a Metro PCS dealer.
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8-05-2008 @ 5:13PM
Abed said...
And just to add couple of things, you can't compare the early termination with a cell phone company to a leased car or a leased a partement. just look how much the car drops in valuse the minute you drive it off the dealer lot.... and with the a partement situation ( real estate is limited not like having a zillion phones available) and yet you still could rent month to month in alot of places.
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