$1 Billion ETF Class Action Against Verizon Approved

Somehow, an arbitrator has approved a massive $1 billion class action lawsuit against Verizon over their early termination fees. In letting the lawsuit proceed, the arbitrator wrote, “…millions of class members are entitled to adjudication of the central common questions of fact or law in this arbitration related to whether the $175 early termination fee imposed by respondents Cellco Partnership d/b/a Verizon Wireless … is based upon an unenforceable liquidated damage clause.” With cellphone companies switching to prorated ETFs and the rise in ETF-related lawsuits around the country, one wonders if we won’t see the death of ETFs in the next few years. By that time, cellphone companies will have figured out a new technique to keep people from leaving their contracts.

Verizon Wireless faces class action over ETFs [RCRWirelessNews] (Thanks to Steve!)

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  1. StinkyCat says:

    class action lawyers should be sued by a class of angry participanrts.

  2. InThrees says:

    If any cell provider CEOs, Board Members, or upwardly-mobile Executive Assistants are reading this – keep this in mind:

    An industry-wide move to drop ETFs means… yes – your customers will have less hurdle to leave your service.

    It also means your potential customers will have less hurdle to acquire your service.

  3. mthrndr says:

    “By that time, cellphone companies will have figured out a new technique to keep people from leaving their contracts”

    Yeah, like maybe INCENTIVES instead of PENALTIES?

    Also, @InThrees: Right on, they may determine that more people will sign up if they don’t have a penalty for leaving. I’d bet the majority of people stick with their carrier anyway, so dropping ETFs wouldn’t hurt them that much.

  4. RandoX says:

    How about a class action suit for Verizon customers who didn’t leave because they couldn’t afford to pay the ETF?

  5. Lmam says:

    Well that arbitrator’s never going to get another telecom-related case again…

  6. StinkyCat says:

    i hate ETF’s too, but you did agree to the fee when you signed up. You don’t HAVE to have a cell phone if you strongly disagree with the terms of the contract.

  7. barty says:

    About 7-8 years ago, numerous companies had no contracts and/or ETFs. Sprint and Powertel (one of the companies bought up that formed T-Mobile, IIRC) were amongst them.

    No shock that Sprint actually had good customer service back then and was actually working as fast as they could to improve their network. They actually had to WORK to retain customers and offer good rate plans and affordable phones rather than handcuff people into lousy two year deals to supposedly subsidize a $50 phone price that only cost the company $100 to begin with. From what I recall, there were more than a few people dropping their old BellSouth Mobility plans (even paying out the termination fees in some cases, since we were able to accept them where I worked) to sign up with Sprint. Why? Because they had something that nobody else in the area had. A competitive edge and good customer service is what is really required to retain customers, not restrictive contracts. You probably lose more customers the other way, because some people will jump ship the second their contract expires never to return.

  8. friendlynerd says:

    @StinkyCat:
    Doesn’t make ETF’s any less anti-consumer. This is a chip in the armor that will hopefully be crumbling soon for the whole industry.

  9. DeeJayQueue says:

    we can’t have it both ways. If telcos get rid of ETFs then they’ll start charging more for the phones. Granted, I think that should have been the way to go from the start. At the time though the subsidies and contracts made it easy for lower-income people to afford cell phones. Now that they’re pretty well entrenched in our culture I think they can get away with charging full price for good quality phones that you can take to any carrier you want.

  10. shadow735 says:

    So why just Verizon, all cell phone companies have ETF’s. Is Verizon just the flavor of the week??

  11. shadow735 says:

    hey deejayqueue I only get a $100 discount for a phone when I sign up for a 2 year renewal, I get what your saying but they need to bring the ETF down to what it the discount was and prorate it based on your remaining years left on the contract.

  12. Curiosity says:

    Class actions are not always consumer friendly, and I would assume that they are entirely suspect in arbitration due to the varying aspects of procedural protections.

    In consumer litigation, they are a “force multiplier” and may relieve you of your right to sue a corporation because you did not opt out.
    Generally:

    1. Class members give up nearly all opportunity to control the litigation of their claims.
    2. Class members do not understand effective notice despite the requirement that notice must concisely and clearly state in plain, easily understood language” the nature of the action, the class definition, the right to appear through counsel, the right to opt out, and the binding effect of a judgment on class
    members.
    3. Class members are bound by the litigation.

    This means that in arbitration the prospect of a class claim’s being adjudicated before an arbitrator rather than a court may discourage some prospective class members from filing such a claim in the first place. Moreover, consider the possible consequences of class wide arbitration – that nonparties to arbitration will be forced into Manditory Binding Arbitration rather than deciding their own strategy.

  13. kc2idf says:

    By that time, cellphone companies will have figured out a new technique to keep people from leaving their contracts.

    I know a good way to do that…. provide consistently good customer service and consistently solid coverage where your customers live and work. Even if you don’t then charge the lowest prices, word will get around.

    As for handling the question of subsidized phone prices…. take a queue from Dish Network (at least, from what they were doing years ago when I signed on with them) and sell the equipment at full price, but offer a deep discount on service for a period of time.

    (Dish network’s mechanism was to sell the equipment for $200 then offer $264 in discounts over the course of the first year of service)

  14. Curiosity says:

    (Of course that does depend on if this will be decided by lawsuit or arbitration depending on what the contract said would be arbitrated. The article implies both in some aspects, but hopefully it is actually a lawsuit)

    Does anyone have the actual 35 page opinion?

  15. chrisgeleven says:

    Well there is one good benefit of Verizon’s ETF: It prevents me from going out and buying an iPhone until the 3G version comes out sometime this year. So I have to thank Verizon for its ingenius ETF.

    Once the 3G iPhone comes out and my Verizon contract expires on 12/27/2008, it is off to AT&T I go. And there is nothing short of Verizon getting the iPhone that will prevent me from doing that. They have just short of 11 months to pull that off, so good luck to them.

  16. enm4r says:

    Can those of us who know we’re going to stick with the same company choose an ETF in order to get a decent phone for free?

    Oh wait…that’s how it already is. ETF might be anticonsumer, but I have used it for nothing but my own gain, namely cheap/free phones. My KRZR for free was not a bad deal, and I’d rather have an ETF that will never affect me than pay $200 for the phone. If you don’t want the ETF, pay for the phone…I don’t understand what the complaint is here.*

    *The only exception I know of is in regards to the iJesus, which is not subsidized in any way.

  17. Zimorodok says:

    I predict that in 2 years, all cell phone contracts will come with a $200 up-front “contract activation fee” that will be refunded at the end of the 2-year contract period.

    Want to upgrade your phone after those 2 years? That’ll be another $200 to activate your new contract.

  18. Sherryness says:

    I’m with the school of thought that believes that ETF’s inhibit/eliminate healthy competition in the marketplace.

  19. PermanentStar says:

    If everybody gets rid of Eearly termination fees, I am guessing that you will see the carriers charging one straight fee for the phone, which, for a phone that you might be able to get with Verizon for free now, might cost you between three and four hundred dollars, more with more bells and whistles…Also, because the monthly anticipated income of the carrier would be much less predictable – because people could just randomly stop service at any point in time, I think that monthly service fees would rise at least $20 – $30 per month to make up for the loss in revenue caused by people moving from carrier to carrier. That being said, I also think that because income would be less predictable, that carriers would tighten their credit restrictions to try to avoid losing additional money from customers with shaky payment histories that they couldn’t rely on to pay their bills.

    Prorating ETRs I think is fair, but I think that not having them really could end up hurting consumers because the carriers would need to compensate for not having a reasonable belief that customers will stay with them for any duration, and of course, companies are not going to just absorb that cost – they will pass it on to their customers when it cuts into their bottom line.

  20. youbastid says:

    @DeeJayQueue: When Sprint had no ETF’s the average price of a mid-range phone was $100, and higher end was $300.
    Pretty much on-par with what phones cost with contract these days.

  21. youbastid says:

    @chrisgeleven: Well, the exclusive with AT&T does expire in 2009…

  22. enm4r says:

    @youbastid: Really? $100 should get you much more than a mid range phone. I guess RAZRs and KRZRs are mid range now, and they’re free…even the top end phones are only $200, and thats getting into multiuse. There are what, 3-4 phones above that?

    Phones have gone up even with ETF because when you start getting into cameras, wifi browsers, etc. If you’re actually paying money for your phone, it’s because you want to do a lot more than simply make calls and take some grainy pictures…

  23. youbastid says:

    @enm4r: Mid-range = Samsung Juke, $99.99 with contract (at least it was if it isn’t anymore).
    Top end phone = LG Voyager, $299.99 with contract.

    Phones haven’t gone up with ETF because of cameras and browsers. The $100 phones on Sprint at the time were very advanced, and would have cost $500 only 2 years before then. Using the fact that phones are more advanced now doesn’t make a good argument.

  24. enm4r says:

    @youbastid: I took a look a Sprint’s prices. They’re more expensive than I thought. I agree, what the hell is the ETF for if they aren’t going to give you better prices on the phone. I think Tmobile, ATT, and Verizon, each of which I have had, have better priced phones with a contract.

    But the difference, I believe, is that you’re comparing “phones” to the phones of yesteryear. Phones that are more advanced are phones like the generic KRZR, lower model LGs, Nokias…and these phones can all be had for free. They still can download music, take (useless) photos, etc etc. They’re phones.

    The LG Voyage/iJesus, etc, all are more than simple phones. Smart Phones, PDAs, call them whatever you want, but denying that these are a different class of “phone”. So saying that advanced phones cost more now because there advanced is indeed a bad argument, I just think we need to compare apples to apples.