Court Makes Sprint Pay $73 Million Early Termination Fee

from the see-how-that-feels? dept

Tue, Jul 29th 2008 7:02pm — Mike Masnick

You know that awful feeling you get when your mobile operator tells you there's a huge "early termination fee" for canceling your contract early? Yeah, that's probably about how Sprint executives feel now that Sprint may need to pay $73 million for its ETFs. A closer look at the details shows that it really would just be refunding $18.25 million and then reversing charges on another $54.75 million in ETFs that hadn't been paid. People absolutely hate ETFs, and even Sprint acknowledged this last year when it noted that its eventual WiMAX network won't have ETFs.

However, there is a reason why such ETFs exist: it's basically to recoup the subsidy that mobile operators pay to give you your super cheap mobile phones. And, those ETFs were in the contracts offered to customers, so it's difficult to see why such things are really a problem. The actual ruling sheds some light on this, as it notes that in 80% of the ETFs, it was actually Sprint terminating the contract and then still charging the ETF -- which, as the ruling points out, is basically Sprint trying to get "liquidated damages." Then, the problem is that it does so in violation of a specific California law that requires a more accurate calculation of liquidated damages, beyond "the ETF is $200 no matter what." So, this isn't the end of ETFs by any means, but might mean that they need to be a bit more fair going forward.

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Filed Under: california, early termination fee, etf, liquidated damages, subsidies
Companies: sprint

43 Comments

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Anonymous Coward, 29 Jul 2008 @ 7:20pm

The ETF isn't to recoup money used to give you super
cheap phones, it's 'because they can'. The phones
are already cheap (economies of scale and comparison with
prices for handsets in countries with actual competition will bear this out), they are just inflated in price and
then reduced.
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Steve R. (profile), 29 Jul 2008 @ 7:58pm

Sprint Bad
We were once customers of Sprint, and Sprint "lost" a class action lawsuit for improper billing practices. The so-called settlement was that Sprint would give a customer a $15.00 credit off their next bill. Well, by then we had quit. Since we had quit Sprint, the settlement did provide that we could get a $15.00 credit by signing up for one of Sprint's 2-year service plans. We didn't see that as a viable option, so we never saw our $15.00 refund. So even though Sprint "lost" they still kept the money. I bet the class action lawyers saw real money and not a credit off their next Sprint bill. I hope, in this case, that the Sprint customers will see real money and not a credit off the next bill.

Additionally, the logic behind the early termination fees is highly flawed. It should be only for actual damages. If a renter breaks a lease and the landlord finds a new renter in a couple of days, the old renter is only on the hook for the days the apartment was actually vacant. So if one breaks a cell phone contract and returns the phone, there should be no early termination charge as the phone company can re-sell the phone to a new customer.
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My 2 cents, 29 Jul 2008 @ 8:07pm

ETFs do suck, especially if the provider sucks, so you get a phone and find out your service is crap, and have to pay extra, just to get out.

There must be a better business model for $ell phone companies, maybe, they sell the phone to you at cost, in turn you agree to x amount of service, with maybe a small (much less then 200$) deposit if you quit early, and the longer you're a customer, the cheaper the ETF gets.

I agree these phones aren't that expensive, they are marked up 300-400%(if not more) to make you think you're getting a deal.

With cell phone quickly replacing home phones, you'd think these companies would be re-thinking things.

If a company has good service and fair prices, they shouldn't have to worry about people living, unless they are moving out of area or money troubles (which if its money problems, they aren't gonna get the ETF any way, at least any time soon... hmmm eat or pay ETF).
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some old guy, 29 Jul 2008 @ 8:19pm

bullshit
if they want to "rent-to-own" us a phone, then fine, put THAT on the contract. There is no good reason for ETFs in their current state. Subsidizing handsets is not a reason, its an excuse. The carriers retail outlets will just as gladly give you a contract with the same ETF whether you get a 4$ phone or a 400$ phone.
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Falindraun, 29 Jul 2008 @ 8:45pm

Re: Sprint Bad
While I agree with what you said. Who is actually going to buy a phone that's used and over a year and a half old? (provided you had a 2 year contract and it ended early)
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Mogilny, 29 Jul 2008 @ 9:22pm

ETF is just a ball and chain
If you sign a contract your own phone, you will still have to pay ETF if you decide to leave your contract. ETF is just
for customer retention.

An aside, i don't know why phone manufacturers feel obligated to use carriers to sell their phones anymore. When the phone was super expensive it made business sense, but now?!? Sell the phones independent of carriers, carriers won't have this phone subsidy excuse to inflate prices and keep dumb fees like ETF.
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Rose M. Welch, 29 Jul 2008 @ 9:30pm

Reverse ETF?
I'd like to see a reverse ETF. Meaning, if the company does anything that violates the contract, you can terminate the agreement and they pay you $200 bucks. Like when I has U.S. Cellular and they butterfingered and added a number to my bank account so the check-by-phone payment didn't go through and they turned my phone off at ten o'clock at night when there's no one in Billing to yell at. Or when I was charged for tones I didn't purchase. Or when they sold someone else an additional line and then billed me for it. You know, things like that... Instead, when I terminated the contract, they said I owed them money...
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Capt Obvious, 29 Jul 2008 @ 9:32pm

ETF's suck and so does Sprint now.
I paid full boat $599 for my Mogul about 2 or 3 months after it came out. They STILL made me sign a 2 year contract.

It gets worse,
Previous to that I had activated an old phone we had upgraded away from (it worked fine once I bought new battery) for a relative of mine to use on our family plan. The CSR on the phone told me that since I was activating an old phone there would be no additional contract or ETF required. I figured that since I didn't sign anything it was the case.
He Lied.
When she decided to get a phone through her work they made us pay a full ETF after 15 months even though they couldn't prove that I agreed to a 2 year contract or ETF. They just kept insisting that that was always the way it was.

Sprint USED to be the best damm company, Ever.
I was a Sprint long distance customer for a long time & due to the exceptional quality of their customer service I bought into their wireless service as soon as it became available in this market.

Sadly since then they have turned completely to shit, and the day my current contract runs out they are never going to see another dime from me, Ever. Ever. Ever.

By the way, I tried and tried to find some other way to say what sprint has become but as a long term customer that remembers the good times, I can honestly say that that is the only possible description.
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Anonymous Coward, 29 Jul 2008 @ 9:37pm

I brought in my own phone. I was required to sign up for a contract to use the service. It had a ETF. I was required to "renew" my contract when I made a change to it, after the initial 2 years. The "new" two year contract has a ETF. How is this justified? Other than the fact that I had to agree to it to continue using the service?
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Mogilny, 29 Jul 2008 @ 10:01pm

Re: Reverse ETF?
Nice try.

Read your contract carefully. In fine prints, it will say that the carrier is entitled to change the terms of the service. In Canada, two major carriers just announced that they will start charging incoming text messages. Nothing their customers can do.
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Anonymous Cowherd, 29 Jul 2008 @ 10:37pm

A bit more fair
To be "a bit more fair", perhaps they should drop ETFs entirely and make these changes:

* "Free" phones are actually financed, with a few dollars added to each monthly bill for this purpose. (This is typical with broadband modems and the telcos like it fine there!)
* If the phone gets paid for fully, it's yours to keep; the monthly bill drops by those few dollars.
* If the contract is ended by either party before that point, the customer can either pay the balance and keep the phone, or return it. (If it's not in good condition, the customer is charged for the repair or the remaining unpaid portion of the phone's price, whichever is smaller.)

Fair enough? (Too fair for any self-respecting telco to ever even consider, I'll bet! Even though returning the phone doesn't get you any money back with the above suggestions.)
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moe, 29 Jul 2008 @ 11:02pm

Re:
That's incorrect, and Mike's right on this one. Living in Germany, I can tell you that the phones are expensive here unless you sign a contract with -- you guessed it -- an ETF. If you decide to just buy a phone w/o a contract, it's very expensive.

5 years ago I bought the cheapest phone they had and got a pay-as-you-go plan. It was 95 Euros, or about $120 for the cheapest one available.
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Moe, 29 Jul 2008 @ 11:39pm

Re:
Wow Anonymous Coward, you really are clueless aren't you? All mobile operators aren't profitable off of mobile devices until approximately 18 months into your service!
That doesn't change the fact that Sprint mischarged but you should at least come with some legitimate info.
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Anonymous Coward, 30 Jul 2008 @ 3:52am

Wha, wha, what?!!!!
Are you kidding me? You mean to tell me that that $400-$600 phone or pda/phone that they offer at a promotional rate of $100 really is just $100?

Come on - the ETFs ARE designed to prevent people from just buying cheap phones and getting out of their contracts early in which case the carrier has lost money.

Carriers ALWAYS subsidize their phones - they make the money back either through ETFs or the actual service plan people subscribe to.
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Ben Robinson, 30 Jul 2008 @ 5:32am

Another Problem with ETFs
Whenever you make a change to your service plan, they make you sign a new 1-2 year contract. If ETFs where only about the new phone costs, the ETF would only last until a set time from when the phone was new.

Even if you read the fine print and know what a crappy deal signing a new 2 year contract is, if you lose your job or suddenly get popular, you may not have much of a choice.
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Paul, 30 Jul 2008 @ 6:26am

Re:
I believe a good deal of the cell companies now give pro-rated ETFs (the longer you're there, the cheaper they are).
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boost, 30 Jul 2008 @ 6:26am

I'd like to see...
...the service providers paying early termination fees when they break their contract through shitty service. I'm not sorry to say this, but when a customer experiences repeatedly bad service and support, it should exempt that customer from the contract. But, they ahve the money and the lawyers, so I don't really expect this to happen. Too bad the government isn't really there to protect our interests anymore.
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Paul, 30 Jul 2008 @ 6:28am

Re: Re: Reverse ETF?
Some contracts give you the option to opt out without the ETF if the contract changes significantly.
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Paul, 30 Jul 2008 @ 6:31am

Re: Another Problem with ETFs
I believe the big names are starting to change that. AllTel got in trouble when they had that commercial saying they won't extend contracts for changes whereas Verizon would. It was kind of silly since the commercial was made when Verizon did actually do that, but now they no longer do. So, at least Verizon has come around with no contract extensions and pro-rated ETFs, not sure of the others (which you'd think i'd at least know my own carrier, AT&T... but i don't)
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looking at the big picture, 30 Jul 2008 @ 6:47am

Can't have your cake and eat it too
Every wireless carrier loses money on every single phone they sell; sometimes they have to control their growth because they can't afford the subsidy cost on a hot phone (subsidy is a telecom practice of giving phones away at a loss to get a new customer, recouping it on monthly service charges). This practice has been going on since the beginning of telecom time; back when there were dozens of carriers. They all practiced this, it's part of the business. The ETF is insurance that they get ROI. So, all you "big business is ripping me off" pundits, sit back and look at all the small guys do the same thing. This is how you get phones for free.

$4 a phone? What are you smoking? The packaging and transportation from China costs more than that!!! Most phones are minature laptops these days. The gravy days of telecom are over, they are all struggling to survive, that's why they are buying each other up.

Look at it this way, you sign up for internet access from your cable company; they give you free installation of cable and a free computer as long as you sign a contract stating that you pay monthly charges for 2 years. And next month, Direct TV comes to you and says I'll give you newer free computer to switch to us; sell the one you have on Ebay, break the contract with the cable company, screw them they charge too much anyway. Then go to court to make it illegal to charge early termination fee so you can get out of the contract YOU SIGNED!!!! American Justice? Freedom? Is this how we want to run our country? If you are self employed do you want to get screwed like that? If you don't want a contract, go to a pre-pay program and pay for you phone up front!!!!!!!!!!
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Anonymous Cowherd, 30 Jul 2008 @ 6:56am

Re: Sprint bad
Who is actually going to buy a phone that's used and over a year and a half old? (provided you had a 2 year contract and it ended early)

This doesn't torpedo what I said earlier (re: rent-to-own, "A bit more fair"); if the phone's a year and a half old, it's also mostly paid off, so the phone company isn't on the hook for as much if they have to eat it, and they can offer it to a new customer cheap. Who might buy a phone that's used and over a year and a half old? Someone on a budget for whom it's cheaper than a new one and adequate for their needs.

If the phone's nearly new, which is when the company would still not have recouped most of its costs, then it's also more desirable to potential new customers. If there's no newer model for that make yet, and it's in good condition, they can just wipe its memory and offer it as if new, assuming they include in their fine print that "new" phones may be slightly used or genuinely new.

There's certainly no justification for charging much more than cost for the phones, one way or another, or (especially) for renewing the ETF period in cases where the phone wasn't replaced with a new one.

In the special case of the iPhone, the high prices may be genuine costs -- there's an exotic new hardware component (the multitouch screen) that might not be cheap to manufacture yet, and it probably has a relatively speedy CPU and a relatively large amount of memory compared to a typical recent-model cell phone, and those cost.
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Nasch, 30 Jul 2008 @ 7:13am

Re:
I agree these phones aren't that expensive, they are marked up 300-400%(if not more) to make you think you're getting a deal.

There are too many manufacturers for that to be the case IMO. If somebody could really sell a phone for a third of what the competition is charging and still make a profit, they would do it. Unless you think all the handset makers are colluding. Which is possible but doesn't seem very likely to me.
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Nasch, 30 Jul 2008 @ 7:18am

Re: bullshit
The price of the phone doesn't matter, it's the discount you're getting below the carrier's cost. So a $4 phone that cost them $79 loses the same amount of money as a $400 phone that cost them $475. The fact that the ETF is always the same is probably to make it more efficient to administer. Whether it's too high or not is another matter, but if it's too high - don't sign the contract.
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jackspar, 30 Jul 2008 @ 7:35am

Money for travellers from class action lawsuit
To get your money, you need to file a claim by 30 May 2008. If you do nothing, you'll get nothing. Start working on your claim now. It might be simple, but it might take some time to get the necessary information, particularly if you are on the road or abroad now.
________
jackspar.
California Treatment Centers
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dkp, 30 Jul 2008 @ 7:37am

Re: A bit more fair
another idea require the charges be broken down in the bill so that the costumer knows what they are paying for.
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hegemon13, 30 Jul 2008 @ 7:50am

Re: bullshit
Or no phone. Sprint tried to pull that with me. I specifically declined a phone because I had one that would work, and I did not want a contract. A year later, I went to cancel, and they told me I still had a year left on my contract. I went up through two levels of management, and their response was, "too bad, you signed a contract." Either Sprint screwed up, or their salesman screwed me over. So, wht exactly are they trying to recoup there? The cost of paperwork to sign me up for a plan? ETFs are anti-competitive and should be illegal.

Fortunately, I worked for an IT company that was also an indirect dealer, and they were able to get it fixed for me.
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Evil Mike, 30 Jul 2008 @ 7:52am

Free...
Ya know, rather than complain, you're free to start a competing cellular phone service company and show them how it should be.

Seriously, do it!
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Steve R. (profile), 30 Jul 2008 @ 10:20am

Re: Re: Sprint Bad
The Early Termination Fee is $200. You had the phone for 1.5 years. If one assumes that an Early Termination Fee is valid, which I don't, then you should only be on the hook for $50.00 since you only had 25% of your contract remaining.

Also, just because the phone is "old" doesn't make it worthless. When we ditched Sprint, we were able to sell our "old" phone, which I believe was over 4 years old at the time of sale.
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Anonymous Coward, 30 Jul 2008 @ 12:31pm

ETF Without Phone
However, there is a reason why such ETFs exist: it's basically to recoup the subsidy that mobile operators pay to give you your super cheap mobile phones.
Then why is it that the contract includes an ETF even if you already have your own phone and aren't getting one from them? Because it's a restricted competition market and they can get away with it.

And, those ETFs were in the contracts offered to customers, so it's difficult to see why such things are really a problem.
Because those contracts aren't negotiable.
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Anonymous Coward, 30 Jul 2008 @ 12:44pm

Re: ETF's suck and so does Sprint now.
Sadly since then they have turned completely to shit, and the day my current contract runs out they are never going to see another dime from me, Ever. Ever. Ever.
That's OK, you'll be back eventually. Your next provider will just screw you too. And so will your next, and so on. You'll just get passed around like a fresh punk in prison with everyone getting their turn with you until you wind up back where you began and then the cycle will repeat. That's just the nature of a market with high demand and restricted competition. Better get yourself some lube.
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Anonymous Coward, 30 Jul 2008 @ 12:49pm

Re: Free...
Ya know, rather than complain, you're free to start a competing cellular phone service company and show them how it should be.
No, you're not. You have to get government permission.
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Anonymous Coward, 30 Jul 2008 @ 12:52pm

FREE!
But they advertise FREE phones! You mean they aren't really free? You mean they're lying? I'm shocked, I tell you. Shocked!
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Capt Obvious, 30 Jul 2008 @ 9:59pm

Re: Re: ETF's suck and so does Sprint now.
Nope, sorry, while I suspect that you are correct I'm upset enough that I'd rather get screwed by ANYONE OTHER than Sprint from now on.

And while you may be right I'd hope that someone in the cell phone biz will figure out that Proper Cust. svc. = Loyal Customers who are less price sensitive.

Case in point, I pay a Premium ISP for Premium service, Customer Service & Support. Yes I pay more than someone that has Comcast but I get more too.

Thanks (I think)
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Rose M. Welch, 30 Jul 2008 @ 10:28pm

Re: Re: Reverse ETF?
I didn't say it could happen now. I said it'd be something I'd like to see... :)
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Klutch, 31 Jul 2008 @ 1:51pm

I understand the ETF's. I don't like them, but they make business sense. What I would more like to see is a carrier that discounts the monthly charges if you bring your own phone or pay full price. So instead of an ETF, you don't have the subsidy added into monthly bill. I see plenty of options for pre-paid, and I think T-Mobile is going to offer month-to-month post-paid, but I don't see anyone offering a discount if you don't subsidize your phone.
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Misha, 4 Aug 2008 @ 12:10pm

Re: ETF
Here is my take as a 4 yr employee of wireless and 2 years in management.

Yes the ETF are subsidizing cost of equipment. As I look at one of the most basic phones available at my company, the wholesale cost we pay as a billion dollar company is $109.99 to the manufacturer. This phone has no camera, no bluetooth, nothing but make and receive calls. How many people do you think want to pay $150 (standard retail mark up from cost) for that???? In a country where everything is measured in what I have to pay today, this would not fly.

I do agree that if you provide your own equipment you should not have to sign a contract or pay an ETF. This is a great idea.

So my ideal company would be prorated ETFs as Verizon, ATT&T and other carriers have now implemented and no contracts for brought in equipment.
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Roy V Dowdy, 6 Aug 2008 @ 10:54am

ETFs
Mostly the reason for a person wanting the early termination is because the service is bad. I had Altell for 46 months and at least 30 of those I was overcharged. I had to go to the sales office every month and get my bill reworked. I finally gave up and quit the service, Altell tried to charge me an ETF. I am now having trouble with Sprint. My contract says cell to cell no charge. Sprint now says "sprint cell" to "sprint cell" no charge. The rewording makes a lot of differance in my monthly usage.
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Steve R. (profile), 7 Aug 2008 @ 7:23am

Sprint Puts Positive Spin on Losses
The New York Times has a new article on Sprint: Sprint Puts Positive Spin on Losses

Sprint has lost nearly a million customers this quarter. According to the article, Sprint did this to improve the "quality" of Sprints customers.

The Times writes: "But the customer losses left some analysts pondering what Sprint’s prospects are. “It’s fine to say you are getting rid of undesirable customers, but that means you have to make significant growth someplace else to make up for it,” said Walter Piecyk, an analyst at Pali Research who covers wireless companies. “It’s a company in perpetual decline.”"

What is missing from Sprint's comments on their decline??? IMPROVED CUSTOMER SERVICE. Its fine to want quality customers, but I don't think quality customers will stick around if they are treated poorly. Seems that Sprint only wants zombies as customers.
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Pavel D., 7 Aug 2008 @ 1:47pm

Prepaid
If you have such a problem with ETFs, handset prices, etc., go out and buy a prepaid phone. All of the major carriers offer some type of prepaid plan and if you don't like those, try Virgin, Tracfone, or some of the smaller carriers.

You can't complain about the contract AFTER you signed it.
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Chance Dexter, 13 Sep 2008 @ 12:43pm

Typical Flawed Assumptions ( like a broken record )
"It's In Your Contract! It's In Your Contract! You signed a Contract! Personal Responsibility!"

Cell phone companies often change the terms of their contracts with little or no notice. In fact, in California at least, the cell phone industry has lobbied heavily to maintain the ability to change the terms of your cell phone contract at will.

The absurdity of thinking that one party has to maintain the terms of an agreement, while another party engages the government to manipulate contractual obligations should be obvious, even to a ditto-head.

That...along with numerous other tactics, such as:
1. Renewing contracts without permission
2. Deceptively named fees not originally in contract
3. Forcing customers into paying for services they don't want through intentional phone obsolescence
4. Increasing costs by renaming the same service (i.e. w/Sprint what was once called unlimited text messaging and cost $5, has now become Enhanced SMS Text Messaging, costs $15, is not unlimited, and is the only option when you purchase a new phone, which you of course you only find out after the fact... )
5. ...many many more
So, in conclusion, the 'it's in your contract' logic is not well reasoned, shallow summation of the reality of dealing with cell phone companies.

...furthermore, It should also be painfully obvious that the termination fee has nothing whatsoever to do with recouping the costs of cell phones provided to consumers. Any pre-schooler who has ever accompanied their mother to the grocery store, realizes that the so called 'suggested retail value' of these cell phones is simply a random number, plucked out of the air, by the marketing department...
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todd, 23 Mar 2009 @ 7:56pm

etf amount
Can anybody advise me how ETF amounts assessed? Even if someone breaks a contract by leaving early, Sprint can't charge an infinite amount of money, only the damage incurred. So if someone leaves a contract with 2 months left on it, can they fight in small claims court a fee of 200$? Thanks for the advice.
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دردشه, 8 Jul 2009 @ 6:31am

tankyo
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lorraine drake, 19 Apr 2016 @ 2:10am

threats
I canceled my phone with sprint after 9 days of the phone going off and on while talking sent it back to them what usage I did was awful they are calling me day and nite and now a threat to the credit union by e-mail she said I should have talked to the supervisor- the girl was so nasty I just left she accused me of doing something to the battery. I have a fully handi-capped son at home and lost my hubby with cancer 2 months ago and this harrassment is awful- I owe nothing please make them stop
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