FCC Reviews Cell Phone Terminations Fees

The early termination fee hanging over the heads of most cell phone users was thoroughly reviewed by the FCC Thursday, but the review was upstaged by a jury in California that ruled in favor of Sprint Nextel's early termination fee policies.

No matter, said FCC Chairman Kevin Martin who noted that he has long argued for federal oversight of the cell phone cancellation fee issue, favoring a nationwide policy over a patchwork of policies from the 50 states.

"While I'm respectful of state regulators, I have been skeptical that lawsuits are a good way of ensuring protection for all consumers," he said. Martin noted that all consumers don't benefit from class action lawsuits. Such suits often result in huge paydays for attorneys and small awards for consumers.

Meanwhile, Sprint Nextel hailed its victory. "We're pleased that upon hearing all the testimony and examing all the evidence, the jury recognized that Sprint makes a significant investment in its customers through reduced handset prices and discounted monthly rates," a company spokesman wrote in an e-mail to reporters.

Similar litigation is pending against Verizon Wireless, AT&T, and T-Mobile.

Martin and the other FCC commissioners focused on several issues involving the early termination fees. "Too often consumers are surprised that the amount they owe on their first bill is not what they expected, only to then learn that their 'trial' period already ended and cancellation will result in paying the early termination fee."

Martin suggested that fees to be charged consumers track the actual cost of the phones involved -- for instance, a fee for a $50 phone would be lower than the fee for a $250 phone.

Commissioner Michael Copps, citing a possible penalty of $800 for a family of four callers wishing to cancel a cell phone contract, suggested that the FCC needs "to better understand how state consumer protection laws affect carriers and consumers."

Commissioner Jonathan Adelstein pointed to recent consumer surveys, which place cell phone service as "among the lower-rated services" reviewed.

Some cell phone service providers have been working to improve their early termination fee policies and some favored the establishment of a national policy. At Thursday's hearing, a Verizon Wireless spokesman, for instance, said the company favors a national approach.

"Faced with the prospect of multiple state policies on this issue," said the firm's executive VP of public affairs Tom Tauke, "Verizon believes that appropriate federal action to establish a national policy is preferable."

The jury in California's Alameda County found that Sprint had suffered damages of $226 million because of customers who terminated their service early, while Sprint subscribers had paid $73.8 million in early termination fees. The Sprint spokesman said the figures used by the jury "validate the use of the early-termination fee and indicate that it was appropriate."