Termination Fees Cost Sprint $17.5 Mln

Sprint has secured a deal to pay $17.5 million to settle a class action suit over early termination fees...and may help the company dodge heftier fines.

Sprint Nextel has obtained preliminary court approval to settle a class action suit over early termination fees associated with mobile phone service contracts for $17.5 million. Although the settlement does not include a California case (in which Sprint may be on the hook for $73 million after its early termination fees were ruled illegal), it may serve as a precedent which could put off a pending $1.2 billion nationwide class-action lawsuit filed against the company over the same fees.

Every major mobile carrier charges early termination (or cancellation) fees to users who wish to get out from under contractual service agreements before the terms expire—and nearly every carrier is facing lawsuits over the fees. Carrier argue the fees are necessary to recoup costs frm heavily-subsidized handsets used to lure consumers into mobile services. However, consumer advocates have argued for years the fees are far too steep and hinder consumers’ ability to switch between mobile operators. The steep termination fees have recently caught the attention of the Federal Communications Commission, and outgoing FCC chairman Kevin Martin has indicated he would support a national policy regulating cell phone cancellation fees.

Sprint has recently modified its cancellation policy to that its fee declines by $10 per month beginning in the sixth month of the contract; however, existing subscribers are eligible for the new terms only if they renew their contracts.

The settlement was granted preliminary approval by U.S. District Judge Jose Linares, and could receive final approval in March 2009. The lead attorney on the nationwide suit has indicated he may file with a New Jersey court to block the $17.5 million proposed settlement.