AT&T to impose $175 early iPhone cancelation fee

[AppleInsider]

AT&T has spent $50 million to beef up its relatively slow wireless network in anticipation of next week's well-hyped iPhone debut, but any customer who isn't wowed by the new gadget will find it costly to cancel the service, reports Boston.com.

Though it has become customary for wireless providers to charge customers who breach their contracts, the measure is usually applied to help providers recoup handset subsidies offered to customers when they first agree to a new two-year agreement.

Even though Apple's $499 and $599 iPhones are not subsidized items, AT&T still plans to charge a $175 termination fee for users who want to break their two-year contracts.

The early termination fee is "a little odd," said Michael Gartenberg, vice president of JupiterResearch in New York. At the same time, however, the analyst doesn't believe it will be an issue for most consumers.

Gartenberg added that AT&T's termination fee is likely a bid to boost its revenues by raising the bar for cancellation and hanging onto these affluent customers as long as possible.

AT&T has not yet said how it will handle, or what it plans to charge, customers under existing contracts who want to upgrade to iPhone early.

[ View this article at AppleInsider.com ]

[Thataboy]

I don't mean to be naive, but are we 100% sure that is legal?

What are we getting for the $175 concession (should we choose to cancel)?

[TenoBell]

Boy AT&T is giving us bad news before they give us any good news.

[deliciouspoison]

Hrm...does this sounds like a *bad* deal to anyone else?

$500 phone, 2 year contract with *very* expensive data plan, $175 fee with breach of contract, bad service with AT&T, and no replaceable battery in the device?

It sounds like if you sign up AT&T has you by the balls.

[BlackSummerNight]

It's BS, but atleast it isn't the 500 bucks you had to pay a few years back. I'm sure there's a penalty for breaking a contract with anyone.

[jbella]

Isn't $175 their normal contract cancellation fee? If I were to get a 1 year contract with a free phone, I think this is the amount of money I would still have to pay to get out of that contract. This does't seem to be news.

[AgNuke1707]

Originally Posted by jbella

Isn't $175 their normal contract cancellation fee? If I were to get a 1 year contract with a free phone, I think this is the amount of money I would still have to pay to get out of that contract. This does't seem to be news.

Exactly my thought. I have Cingular now ... if I break my 2 year with them, it'll cost me $175. Verizon would charge you $150. I dunno how much T-Mobile, Sprint, etc. would charge you, but I dunno why this is an issue ... if you're breaking the contract, then you're breaking the contract. Same thing happens when you lease an apartment - if you break the lease early, usually they'll charge you a fee in addition to an extra months rent. Yes, I know the iPhone isn't being subsidized, but without knowing the rate / data plans for the phone, how do we know the plans themselves aren't being partially subsidized. Someone on a board yesterday made mention of a rate plan with like 1000 anytime minutes, unlimited nights & weekends, rollover, and unlimited data for $100. (I think if they did this it would be a bit pricier, somewhere around $149 maybe...) If AT&T does this, especially since their unlimited data (with WiFi) plan is $99.99 a month right now, it makes since that they would still impose this fee...

Now is it shitty to have a 2 year contract, of course. I had AT&T back before the Cingular and AT&T merger 3 or 4 years ago, and it was by far the worst experience I'd ever had with ANYTHING as far as customer service and communication goes, but it would have cost $175 to get out and go somewhere else, so I was pretty much stuck. The service gradually got better, especially after they acquired Cingular, but it's the risk you take signing ANY contract. You're gambling on whether or not you'll be happy with the service. It sucks, but that's the way it is right now. But really, this is a non-news item, AI could have picked up any AT&T or Cingular contract and seen that the cancellation fee is standard across the board for any phone or any plan.

[wilco]

Originally Posted by jbella

Isn't $175 their normal contract cancellation fee?

That's for subsidized phones, Einstein. What justification does AT&T have for such a fee in this situation?

Any more bad news, and Solipsism may need a new piece of technology to wank to.

[m01ety]

Originally Posted by deliciouspoison

Hrm...does this sounds like a *bad* deal to anyone else?

$500 phone, 2 year contract with *very* expensive data plan, $175 fee with breach of contract, bad service with AT&T, and no replaceable battery in the device?

It sounds like if you sign up AT&T has you by the balls.

Except they haven't announced anything about the data plan's price. So you're speculating.

[CosmoNut]

This kind of stuff just sticks in my craw. Whether it's an apartment or cell phone lease, it's completely unreasonable for any company to make sure they're going to get their money out of you even if you have found that their service is pathetic and despicable.

Always get dropped calls? Pay up to get out of the contract.

A/C always breaking down in your apartment? Pay two months rent to leave.

Pathetic.

[anantksundaram]

Where's Congress!? The FTC!?

[anantksundaram]

Originally Posted by anantksundaram

Where's Congress!? The FTC!?

The smiley should have been:



(Sorry -- still haven't figured out how to change a smiley in "edit post").

[pt123]

Long lines, crowd control, $499, termination cancellation fee, and people have even tried out the device yet. Wow!

[EchoGekco]

Here in Denmark carriers are only allowed to tie you to a 6 months contract, and we still get pretty cheap phones. Guess that's why we have to wait so long for the iPhone...European markets are very different from the US.

But all said...you still get to buy the damn thing!

[BlackSummerNight]

$499 for the 4G, which I'm sure they will be out of and say "we only have the 8G available" for $599.

Originally Posted by pt123

Long lines, crowd control, $499, termination cancellation fee, and people have even tried out the device yet. Wow!

[Giffen]

Originally Posted by pt123

Long lines, crowd control, $499, termination cancellation fee, and people have even tried out the device yet. Wow!

The $175 cancellation fee being so low, can only mean that the data plan for the iphone will not cost a lot per month. Think about it, if the plan was 50 per month then the cancellation fee being only 175, you recoup that in only a bit over 3 months after you cancel, while if instead the data plan is 20 per month it takes a longer time...about 10 months to recoup that cost.

What this means is that the data plan will probably be lower price than what some on here are predicting, else that cancellation fee would not be much of a disincentive now would it?

Also any contract you sign can have a cancellation clause with a fee attached, it is your choice to sign the contract in the first place, no one forces you, so the amount is totally up to the provider of the contract.

[Cam'ron]

Did you guys actually think you could buy the phone with a contract, call into AT&T and cancel the next day and wait until someone finds a way to unlock the device? I am sure it will be unlocked at some point, so how does AT&T benefit if you buy this phone and walk away with no penalty?

[pt123]

Originally Posted by Giffen

Also any contract you sign can have a cancellation clause with a fee attached, it is your choice to sign the contract in the first place, no one forces you, so the amount is totally up to the provider of the contract.

Yeah but I usually get a discounted phone with a cancellation fee clause. Glad to see you are such a defender of the phone company.

[DaveGee]

Originally Posted by anantksundaram

Where's Congress!? The FTC!?

In June? Out on a Communication Industry Lobbyist Sponsored junkets to the Caribbean I'd imagine.. Why do you ask?

Dave

[DaveGee]

In a related line of thought...

How does this fly with the notion that Apple will be selling the iPhone in their retail stores and NOT signing up AT&T accounts/contracts?

Dave

[lodenmuse]

...But if you paid a cancellation charge, would you be able to use the iPhone on any other carrier?

(I admit, this would be the only way I would spring for an iPhone. I had--and left--Crapular twice in the past, and would never use them as a company again. So, I'm probably just waiting for the iPhone 2G, 3G, mini, nano... when they're outside Crapular's "exclusivity" or unlocked.)

[Neruda]

Originally Posted by pt123

Yeah but I usually get a discounted phone with a cancellation fee clause. Glad to see you are such a defender of the phone company.

A contract is a contract. If you sign it, even if it is a contract of adhesion or you don't read it, you are bound by its terms. If you don't like the terms, don't sign/buy the phone. Caveat emptor.

[mstone]

It's just a contract. If you don't pay the monthly fee, then that is a breach of contract. If they don't live up to their end of the agreement, then you can take appropriate legal action against them. It's pretty straight forward really. Technically, any contract is negotiable but in this case I don't think they will. Take it or leave it...

[Louzer]

Originally Posted by CosmoNut

This kind of stuff just sticks in my craw. Whether it's an apartment or cell phone lease, it's completely unreasonable for any company to make sure they're going to get their money out of you even if you have found that their service is pathetic and despicable.

Always get dropped calls? Pay up to get out of the contract.

A/C always breaking down in your apartment? Pay two months rent to leave.

And when you get service better then you expected, and they come to you and say "Our contract says you'll only get 300kbps data transfer, and you're now getting 2mbps, so we want you to pay $20 more a month", or, "You're contract says you get no AC, but not that the AC works, we want more money!", you'd say "No, I have a contract!".

A contract is a contract. They can argue whatever they want. To be truthful, I don't know whether they're required to have opt-out abilities at all. Since when did it become OK to just say "Hey, I don't like the terms of my deal, I want to leave it, and I don't want to pay the other party for breaking this deal."

Originally Posted by wilco

That's for subsidized phones, Einstein. What justification does AT&T have for such a fee in this situation?

Any more bad news, and Solipsism may need a new piece of technology to wank to.

Um, you signed a contract, ergo they have expectations that you will abide by the contract. Again, why do you have expectation you should be able to cut loose from the contract just because you want to?

Originally Posted by DaveGee

In a related line of thought...

How does this fly with the notion that Apple will be selling the iPhone in their retail stores and NOT signing up AT&T accounts/contracts?

I believe you need to sign up with AT&T before you can activate or use your phone. And I think you'll have to do that in the store, not later. There's no reason not to do this, its not like they'll have many options for plans, maybe two at the most.

[wilco]

Originally Posted by Louzer

Um, you signed a contract, ergo they have expectations that you will abide by the contract. Again, why do you have expectation you should be able to cut loose from the contract just because you want to?

Um, re-read what I wrote. Um.

[mstone]

Originally Posted by wilco

What justification does AT&T have for such a fee in this situation?

No justification needed. That is their offer. However, it is an interesting point because it could be illegal in some states.

m

[bdkennedy1]

And there we have it. This solidifies my reason to wait to get one. It will cost you $175 if you don't like or can't use the phone. No thanks.

[Kolchak]

Originally Posted by wilco

That's for subsidized phones, Einstein. What justification does AT&T have for such a fee in this situation?

The better question is since this isn't a subsidized phone, what justification does AT&T have to force you to sign a contract to begin with? The simple answer is they simply want to keep you beholden to them for two years. That's why they have a contract. And if there's no penalty for breaking the contract, then an awful lot of people would do so. Hence, the $175 cancellation fee. That's just reality.

Originally Posted by bdkennedy1

And there we have it. This solidifies my reason to wait to get one. It will cost you $175 if you don't like or can't use the phone. No thanks.

Uh, nope. If you don't like the iPhone, go ahead and sell it and transfer the contract to the buyer. I'm sure there'll be plenty of people who won't mind picking up a slightly used one for a small (say $50) discount. Voila, no cancellation fee because it's not cancelled. Cingular always let you do it, no reason AT&T won't. Or better yet, if you figure out in the first few days that you don't like it, just return it to AT&T for a full refund.

[TKN]

I figure the $500 price point is probably subsidized, they just aren't giving you the real option of a non-subsidized price, or rather they are: +$175 which is pretty typical anyway.

The real issue is why bother if it is going to be locked and there is no way to use it with another network? Perhaps it is not as locked down as they want you to believe.

[Neruda]

Originally Posted by wilco

Um, re-read what I wrote. Um.

Um, you wrote:
What justification does AT&T have for such a fee in this situation?

Louzer replied that it is a contractual justification. He answered your question.

[BenRoethig]

Originally Posted by lodenmuse

...But if you paid a cancellation charge, would you be able to use the iPhone on any other carrier?

(I admit, this would be the only way I would spring for an iPhone. I had--and left--Crapular twice in the past, and would never use them as a company again. So, I'm probably just waiting for the iPhone 2G, 3G, mini, nano... when they're outside Crapular's "exclusivity" or unlocked.)

They're usable by any carrier... as long as its AT&T

[Neruda]

Originally Posted by Kolchak

The better question is since this isn't a subsidized phone, what justification does AT&T have to force you to sign a contract to begin with?

Sorry to nick-pick, but AT&T is forcing people to sign contracts? People are being forced to buy this phone against their will now? Are they?

There is a choice here. If you don't like the terms, don't buy it. No one is forcing anyone to do anything.

[archer75]

You sign a contract to get the phone at a cheaper price than normal. You break that contract you pay a fee. It's standard for any cell phone provider.

[Neruda]

Originally Posted by mstone

...it is an interesting point because it could be illegal in some states.

What states could those be? Please get back with an answer after you do some research. I'm interested in finding in what states and on what legal theories this illegality would be based on.

PS: not being sarcastic, I really want to know because this seems highly doubtful.

[mrjoec123]

Originally Posted by bdkennedy1

And there we have it. This solidifies my reason to wait to get one. It will cost you $175 if you don't like or can't use the phone. No thanks.

Pretty much all carriers let you out of the contract in the first 30 days after signing. After that, they hit you with the cancellation fee. I'm sure this will apply to iPhone as well.

[johnsharrington]

Isn't it possible to get out of a new contract with AT&T for 30 days? Could you simply purchase the phone, and then cancel your service contract within 30 days, while keeping the phone?

And please forgive me if this is a stupid question... Is it inevitable that somebody will unlock the iPhone? And if it is unlocked does that mean it could be used with a SIM card from another carrier?

I live in Montana where there is no AT&T service. (but there is GSM coverage - Chinook Wireless) I signed up with a California billing address and got a free phone today (if I'm getting a new contract I'm going to get a free phone or a significant discount). I may sell my "free" phone on the internet to recoup some of the cost of the iPhone. (the phone I got sells on Ebay for $250)

This makes the iPhone a $250 phone for me (if I sell) and I will generally be roaming on another carrier. I understand that AT&T reserves the right to cancel a contract if 50% of the calls are placed outside of the "home area". I figure that if they cancel my contract, I could hopefully get my phone unlocked and use it on Chinook Wireless with a SIM card from them. (and I'll probably get a free phone from them as well)

Anyway, this probably sounds ridiculous to most rational people. But I am completely irrational about the iPhone. It is an emotional attachment and I wouldn't hesitate to pay $1000 for the phone. I know there are likely to be some shortcomings with the phone... I just don't care.

[SMN]

Originally Posted by Neruda

A contract is a contract. If you sign it, even if it is a contract of adhesion or you don't read it, you are bound by its terms. If you don't like the terms, don't sign/buy the phone. Caveat emptor.

Putting aside whether this would be a good or bad policy, it's not how the law works in any jurisdiction in the U.S. that I'm aware of. The $175 cancellation fee is a liquidated damages clause which, since it isn't justified here by a subsidy on the phone, runs a very substantial chance of being deemed an unenforceable penalty clause (this is a matter of common law that will vary state by state, so it's hard to say much in general). It'll be very interesting to see how this pans out.

(As far as contracts of adhesion go, you're quite wrong on that as well - they get less judicial deference almost everywhere, but the specifics of how that works is a hotly contested issue in the law right now - but here that will just be subsumed as one of the several factors in the liquidated damages analysis.)

-S.

[mrjoec123]

I'm really shocked that people are finding this out of the ordinary. There HAS to be some penalty for breaking the contract; otherwise, there's no reason not to break the contract. And, as many people have pointed out here, you don't HAVE to sign the contract. Just use another phone.

Since iPhone will only work on AT&T, why would you want to break the contract, anyway? Unless you were completely unhappy with it, in which case the first 30 days rule applies.

[mrjoec123]

Originally Posted by SMN

Putting aside whether this would be a good or bad policy, it's not how the law works in any jurisdiction in the U.S. that I'm aware of. The $175 cancellation fee is a liquidated damages clause which, since it isn't justified here by a subsidy on the phone, runs a very substantial chance of being deemed an unenforceable penalty clause (this is a matter of common law that will vary state by state, so it's hard to say much in general). It'll be very interesting to see how this pans out.

(As far as contracts of adhesion go, you're quite wrong on that as well - they get less judicial deference almost everywhere, but the specifics of how that works is a hotly contested issue in the law right now - but here that will just be subsumed as one of the several factors in the liquidated damages analysis.)

-S.

How do you know it's not justified by a subsidy on the phone? For all you know, Apple is charging AT&T $200 on every iPhone. The terms of their deal are not public. Besides, I'm sure it would be easy for AT&T to come up with other losses involved with early termination—the beefing up of infrastructure, visual voicemail, etc.

You want to cancel on them and then try to sue for your $175 back—go for it. You're going to lose.

[Kolchak]

Originally Posted by Neruda

Sorry to nick-pick, but AT&T is forcing people to sign contracts? People are being forced to buy this phone against their will now? Are they?

There is a choice here. If you don't like the terms, don't buy it. No one is forcing anyone to do anything.

Oh, for crying out loud. It's not rocket science. Do I have to spoon-feed you everything before you understand it? Okay, here: "What justification does AT&T have to force you to sign a contract in order to be able to buy an iPhone to begin with?" Comprende?

If you really want to "nick-pick," it's nitpick.