Jul 31, 2008

Expensive Unlocked Cell Phone Contracts Coming?

Contract agreements might be set to change for the cellular industry providers and customers of cellular phones.

Today, in a landmark ruling, a California Superior Court Judge ruled that the common practice among wireless providers to levy an "early termination penalty." is illegal. The judgment cost Sprint $18 Million in current fees and over $50 Million in additional disconnect fees it was trying to collect from people who disconnected prior to term and didn't pay. I've always maintained that this practice was improper; and, in fact, still have a collector from AT&T bugging me about the bill after dumping AT&T when they couldn't deliver service properly on the Central Coast when I moved here in 2003. (Shell Beach doesn't have a tower, apparently.) So, to me, it's high time this billing practice changed.

Will this change the industry immediately? Maybe. I predict that more and more wireless companies - especially AT&T - will change the structure of how they sell their phones. Instead of a highly discounted, or even free phone, we'll start to see the full retail price of phones and perhaps about the same monthly fee on the contract. Obviously, if we can switch any time we want, then they might charge more for the phone. However, I'm not certain that means consumers will be charged less on their monthly charges. My guess: they'll lower the rates slightly on the monthly to make up for the higher initial phone price.

Then again, a more likely event is the cellular phone company appeal to the FCC federal level, which could (and likely would) overturn the State decision. Is this battle over? Not by a far cry, but I wouldn't be surprised to see this decision impact the way agreements are structured in the near-term. It might even unlock the iPhone to Verizon so I can convert from Treo 755p to iPhone (I keep waiting...).

How does this relate to entrepreneurs marketing their businesses? Well, keep in mind that if you come up with a nifty payment structure that may be illegal, you may end up paying for it down the road. My suggestion is to start out with above-board agreements based upon current standards and practices to avoid unnecessary litigation and hostile customer reaction.

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