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Archive for Wednesday, July 30, 2008

Ruling on Sprint fees may be blow to industry

July 30, 2008

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— The fees that cell phone carriers charge customers who break service contracts took a big hit in a California courtroom when a judge said such charges by Sprint Nextel Corp. likely violate state law.

The judge, in a tentative ruling issued late Monday, said Overland Park, Kan.-based Sprint will have to pay $18.3 million to customers who sued over the fees and credit $54.8 million to those who were charged but did not pay the fees.

The same judge is considering other lawsuits against telecommunications companies over their so-called early termination fees, which can range from $150 to $225. This month Verizon Wireless agreed to pay

$21 million to settle an identical lawsuit just as trial was starting.

Alameda County Superior Court Judge Bonnie Sabraw rejected Sprint's argument that a state court had no business deciding an issue the company said should be left for federal authorities. And while her ruling isn't legally binding outside the state, it cut to the heart of an ongoing debate in other state courthouses and in Washington, D.C., over the fairness of the fees.

Wireless carriers say early termination fees are necessary so the companies can recover the cost of mobile phones, which they subsidize when customers sign long-term service contracts.

The Federal Communications Commission is enduring intense lobbying over how best to handle the fees. Telecommunications companies have asked the FCC to regulate the fees and shield wireless companies from class action lawsuits in state courts, such as the one Sprint is poised to lose.

At a public hearing last month, FCC Chairman Kevin Martin sketched out a plan in which the cancellation fees would be reduced over the life of the contract. Three companies - T-Mobile, AT&T and Verizon Wireless - already do that and Sprint said it would begin prorating its fees next year.

Martin said he hoped the commission would make a decision in August.

Sprint will get a chance to change Sabraw's mind at another court hearing. But it's considered unlikely that the judge will alter her detailed, 37-page tentative ruling, which she issued after presiding over a two-week trial in June.

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