Clearwire accused of knowingly overselling service

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WiMax operator Clearwire has certainly faces its share of challenges, from finding money to build out a nationwide 4G WiMax network to ongoing pricing disputes with Sprint. Now the company is facing a new lawsuit that accuses the company of false advertising and unfair business practices. The suit claims Clearwire advertised and sold service outside its coverage areas, and then shafted customers with up to $220 in cancellation fees when they try to cancel service that didn’t live up to Clearwire’s hype.

“Clearwire entices consumers into long-term contracts for Internet and phone service by advertising its service as a fast, reliable, “always-on” alternative to cable or DSL internet access, and as a superior alternative to traditional land-line telephone service,” wrote Jonathan Tykcko of Tycko & Zavareei LLP, the attorneys handling the case, in a statement (PDF). “When those consumers seek to cancel their Clearwire service because they discover [..] Clearwire service is slow and unreliable (or for any other reason), the consumers learn that their long-term contracts contain an Early Termination Fee provision pursuant to which Clearwire charges a fee of up to $220 for canceling.”

Backing up the suit are email messages passed along from an anonymous Clearwire employee, in which Clearwire’s director of engineering acknowledges that “sector limits were changed” so the number of potential pre-qualified customers could be increased. The result would be cases where potential customers were pre-qualified for WiMax service when, in actuality, they were outside Clearwire’s coverage areas. According to the complaint (PDF), the ramifications of expanding the pre-qualified coverage areas were known to Clearwire top management and a group of engineers within the company, but the initiative was approved anyway. The financially-strapped Clearwire was undoubtedly looking to expand its potential customer pool and increase revenue; however, if charges of false advertising are held up, it would appear the company was also comfortable with that revenue coming in the form of termination fees from disgruntled customers.

The suit has been filed in King County, Washington—Clearwire is headquartered in Kirkland, Washington, a Seattle suburb. The suit is seeking class action status, along with recover of early termination fees an an injunction prohibiting Clearwire from enforcing its early termination fee provisions or engaging in false advertising.

The suit isn’t the only challenge Clearwire faces: last November, the company flat-out stated it might run out of money by mid-2011, and Clearwire has been promising a resolution to its pricing dispute with Sprint was “imminent” since mid-February.