AT&T to impose $175 early iPhone cancelation fee

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  • Reply 61 of 116
    Quote:
    Originally Posted by Neruda View Post


    There is another, more fundamental choice. Buy it or don't. I would like to be able to buy a Ferrari from GM at GM prices, but it ain't gonna happen.



    That's not quite a similar analogy. But imagine this...



    "We here at Tirelli® are introducing today our revolutionary new iTire? 100 Premium Tire. It's an amazing tire, and we think you're gonna love it. Its improved handling eliminates accidents, improves gas mileage by 25%, and its new CarbonTouch? technology actually absorbs carbon dioxide from the air--reducing your car's environmental impact the more you drive. And it's only available... on all GM vehicles."



  • Reply 62 of 116
    icibaquicibaqu Posts: 278member
    i'm a real lawyer and i can bet you that at&t's lawyers looked into the validity of the clause regarding their cancellation fee.



    or it could be that the phone is subsidized behind the scenes, hence the fee, etc.
  • Reply 63 of 116
    jeffdmjeffdm Posts: 12,951member
    A lot of these arguments hinge on the assumption that the iPhone isn't subsidized. I don't remember any official statement saying whether or not that is true. If the unsubsidized price of the device is $200 higher, then a $175 cancellation fee isn't that bad. The difference between subsidized and unsubsidized is probably all profit for AT&T anyway.
  • Reply 64 of 116
    .....
  • Reply 65 of 116
    Having worked at a wireless carrier once, I know this sucks and prepaid is much better, though North American carriers lose their shirts on prepaid.



    All the terms for existing AT&T contracts are available on the web. $175 is not new. $36 activation is not new. It is not damage recovery, it's absolutely legally enforceable as a contract cancellation fee.



    "If phone is returned within 3 days, activation fee will be refunded. If phone is returned within 30 days in like-new condition with all components, early termination fee will be waived. All other charges apply."



    When you breach an apartment lease with a landlord, you're expected to pay for all of the rent up until the end of the lease, provided the landlord has proof that they've tried to re-rent the apartment. You can challenge this in court, but if they prove they advertised & showed the place as much as any other openings they have, you have a burden to pay.



    Wireless carriers, recognizing that too onerous a contractual burden will keep people away from mobiles altogether, have simplified this by just requiring a lump-sum payment. $175 is better than a few years ago, where I've seen requirements in the $400-500 range.



    The reason for this fee is that carriers spend massive fixed costs ($billions) on the radio towers and network + IT infrastructure to support it. Secondly, they spend *ridiculous* amounts of money on marketing, sales, and promotions to gain customers. No, that's not your problem, it's theirs, and yes, there is plenty of waste.



    The way they recoup it is by ensuring "break even" revenue for every customer vs. the average amount of money they spent to acquire that customer. This is the basis for the contract & cancellation fee pricing.... An activation fee + cancellation fee (around $225) might still be a loss, in their metrics.



    This is the sacrifice that Apple made - one to North American mobile phone market idiosyncracies. They could have started their own MVNO (mobile virtual network operator) with their own terms, with all of its annoyances and pains, or they could have gone with an existing carrier like AT&T. The latter probably has a better comfort level for non-Apple nerds.
  • Reply 66 of 116
    smnsmn Posts: 13member
    Quote:
    Originally Posted by lfmorrison View Post


    Just a naive question here:

    Could AT&A argue that the damages in this situation are due to the loss of potential income from the service plan fees? I mean, they agreed to a contract under the understanding that they could offset their infrastructure costs with a minimum stream of income every month, that would last for at least 2 years.



    That turns out to be an interesting question, but I think the answer is no. (Disclaimer: This is off the cuff, don't rely on it as actual legal advice but rather consult a lawyer in your jurisdiction first, etc etc.



    Let me begin with an analogy. Let's say I promised one year ago to buy a goat from you today for $100, and now today I refuse to buy it. Let's also suppose that you could sell that goat on the market today for $80. What damages are you entitled to? You expected to have $100 and no goat, but instead you have a goat worth $80. You're entitled to sue me for the difference, which is $20. (Note that if the contract we signed a year ago said that if I breach the contract I have to give you $500, a court would refuse to enforce that as against public policy. As I've said, there's good reason for that; see, e.g., Richard Craswell, "Contract Remedies, Renegotiation, and Efficient Breach," 61 S. Cal. L. Rev. 629.)



    Now, let's say that I promise to a two-year service contract with AT&T and cancel after one year. What are the damages? It turns out that we can't really apply the same reasoning so well. On the one hand, AT&T can now sell the extra bandwidth I'm not using to someone else (presumably at the same rate), so the damages are zero. On the other hand, AT&T probably wasn't 100% capacity limited, so they probably could have sold a plan to that other guy anyway, so they've lost the full value of my contract. The problem is that cell service providers' costs are mostly fixed costs (infrastructure), and the marginal cost for any particular individual user are basically zero.



    In an earlier post I laid out the two conditions for a liquidated damages clause being unenforceable:



    Quote:
    Originally Posted by SMN View Post


    Liquidated damage clauses are only enforceable if (a) it would be very difficult or costly for a court to ascertain what the actual amount of damages caused by the breach is (as measured by the difference between where the non-breacher would be had the contract been fully performed and where the non-breacher actually is as a result of the breach), and (b) the amount in the liquidated damages clause constitutes a reasonable estimate of what the actual damages might be.



    What we've just seen is that the cost structure of the cell phone service industry is such that condition (a) is met -- it's very hard to figure out what the actual cost of providing service to any particular user are. (The best we can do is probably an average - how much is the total cost of AT&T's infrastructure divided by the maximum users it can handle? But any estimate of this won't have very good precision, because the maximum number of users depends on things like how they're distributed geographically relative to where the capacity is, etc, and because the average user might not reflect this particular user.) In that case, a court will accept the parties' estimate of damages as agreed to in a liquidated damages clause IF that estimate is reasonable (condition (b)).



    However, I think it's highly unlikely that condition (b) is met here. First, the $175 cancellation fee is a flat fee, regardless of how many months are left in your contract, so it doesn't track costs at all and thus isn't a "reasonable estimate" of actual costs. There's a famous case involving a lease for a grocery store, and the contract said that in the event of a breach the penalty would be based on the average monthly gross revenue, and the court refused to enforce it because if it were tracking costs it should be based on the NET revenue, not the gross revenue; this is similar (indeed, this does an even worse job of tracking costs). Second, according to what others are reporting here, the $175 flat fee is the same as what AT&T charges to terminate plans where the phones are subsidized (or even free). The cost of breach to AT&T in those cases is clearly higher than the cost in this case due to that extra expense, yet they charge the same fee; that's another sign that the $175 fee isn't actually a reasonable estimate of the cost of breach.



    For these reasons, I don't think a court is likely to accept the $175 amount as a reasonable amount of damages, and it won't enforce it. (But again: this is a common law issue that will vary state by state, and I don't know how the analysis might be different in any particular jurisdiction; but most operate somewhat like this.) So what will a court do? It'll probably ask both sides to submit evidence suggesting what the actual costs are, then come up with its own best estimate -- probably the "average cost" measure I suggested earlier (which is a bad measure, but better than the $175 flat fee!).



    One final catch: the cost of litigating this, for an individual consumer, is probably much more than $175, so most would be likely to just pay the fee and not challenge it. However, if you got together enough consumers who this happened to, it might be ripe for a class-action; at that point it could be cost-effective. I don't think any litigation is likely here, unless you have a lawyer who wants to leave the plan and argue this pro se on his own time; but I still think the answer is that it likely would be found unenforceable.



    -S.
  • Reply 67 of 116
    Quote:
    Originally Posted by icibaqu View Post


    i'm a real lawyer and i can bet you that at&t's lawyers looked into the validity of the clause regarding their cancellation fee.



    This is -- please pardon me -- quite a lame, tiresome argument. I hear this all the time, with respect to lawyers, analysts, accountants, doctors, engineers: "they are high-paid professionals, so they must know what they doing."



    If so, company legal departments would be winning their cases 100% the time. But, ask Merck. Ask Philip Morris. Ask Enron. I can provide hundreds of similar examples........
  • Reply 68 of 116
    nerudaneruda Posts: 435member
    Quote:
    Originally Posted by SMN View Post


    For these reasons, I don't think a court is likely to accept the $175 amount as a reasonable amount of damages, and it won't enforce it. (But again: this is a common law issue that will vary state by state, and I don't know how the analysis might be different in any particular jurisdiction; but most operate somewhat like this.) .



    For the sake of avoding redundancy, I won't directly reply to your post and will quote parasubvert instead:



    Quote:
    Originally Posted by parasubvert View Post


    All the terms for existing AT&T contracts are available on the web. $175 is not new. $36 activation is not new. It is not damage recovery, it's absolutely legally enforceable as a contract cancellation fee.



    Companies have 25+ years of imposing cellphone cancellation fees. They are enforceable. What is the precedent that says otherwise?
  • Reply 69 of 116
    zac4maczac4mac Posts: 37member
    Hey Sirus20x6 - went to your website to check out your "info"... I LOLd at all the spam you have in place of article comments. No real comments to be found, and your piece on the iPhone is as full of holes as a paid analyst. Thanks for wasting my time.



    Y'all argue all you want, one week and 6 hours from now I'll be playing with my new iPhone.



    Time to leave work and ride into Boulder and do some Apple/AT&T recon



    Z
  • Reply 70 of 116
    Yes the $175 is normal with Cingular/AT&T the reason I think they are doing this is to prevent their customers from switching when Apple rolls the phone out to other providers. Most of the top end smart phones when they first launch are from $399 to $499.
  • Reply 71 of 116
    davegeedavegee Posts: 2,765member
    Quote:
    Originally Posted by SMN View Post


    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.



    Huh?!?!



    I'm not saying that I'm not disappointed by this but I'm not totally in shock over it either.



    Any long time DSL subscribers in the house? I happen to be way to far from the CO but when I thought I would have been in a position to get DSL I remember that one of the things I didn't like with DSL was the **required** 2 year contract.. Now since I never got anywhere near far enough to actually be in a position to sign such a contract I don't know... but... I would have to imagine that those who did sign up on a 2 year DSL contract were in-fact obligated to pay some form of early termination penalty.... I would imagine the same holds true for auto leases and a host of other things where you sign and initial by the big black X.



    Can any 'under contract' DSL users chime in?





    Edit...



    Linky: http://www.consumersunion.org/blogs/..._broadban.html



    On broadband providers charging ETFs:



    Quote:

    AT&T (Including SBC and BellSouth) - $99 ETF

    Cablevision - No ETF

    Charter - No ETF

    Comcast - No ETF

    Earthlink - $149 ETF on 1 year DSL contract

    Qwest - $200 ETF on 2 year high speed Internet contract

    Time Warner Cable - No ETF

    Verizon DSL - $79 ETF

    Verizon FIOS - $69 ETF



    I see no reason why AT&T couldn't do the same....



    Dave
  • Reply 72 of 116
    brussellbrussell Posts: 9,812member
    Whaaaa? What is going on in this thread?



    1) Yes, it is normal to have these fees.

    2) Yes, these fees suck and are good for corporations and bad for consumers.

    3) Yes, I'm sure there are legitimate legal questions about such cancellation fees.

    4) Yes, cell phone companies like AT&T really, really suck.
  • Reply 73 of 116
    cosmonutcosmonut Posts: 4,872member
    Quote:
    Originally Posted by Neruda View Post


    I would like to be able to buy a Ferrari from GM at GM prices, but it ain't gonna happen.



    We're not talking about the Ferrari. We're talking about the GAS in the Ferrari. This is like paying full price for the Ferrari and then Conoco saying that you have to buy THEIR gas each month for two years and if you decide to stop buying THEIR gas then they charge you for it.



    I want to be able to choose who I pay for minutes/data just like I choose where I buy the gas for my car and chose what apartment I live in and what ISP to surf the Web with.



    I also don't like being dictated to on how much I'm required to line a particular company's pockets...ESPECIALLY when it doesn't include subsidizing the phone I'm using.



    I'm on month-to-month for AT&T DSL with no contract. That's from day one of service. If I've paid full price for the iPhone why should there be a service contract other than to squeeze as much money out of each and every customer as possible?
  • Reply 74 of 116
    davegeedavegee Posts: 2,765member
    Quote:
    Originally Posted by CosmoNut View Post


    I'm on month-to-month for AT&T DSL with no contract.



    No contract from day 1?!?! I'm betting that when you first signed up you certainly were under contract. Especially if that story I linked to above is true and even if you *were* able to get DSL w/o a contract those days seem over to me.



    Dave
  • Reply 75 of 116
    nerudaneruda Posts: 435member
    Quote:
    Originally Posted by CosmoNut View Post


    I want to be able to choose who I pay for minutes/data just like I choose where I buy the gas for my car and chose what apartment I live in and what ISP to surf the Web with. I also don't like being dictated to on how much I'm required to line a particular company's pockets...ESPECIALLY when it doesn't include subsidizing the phone I'm using.



    What you want does not directly dictate how Apple/AT&T sell the iPhone. Just because other companies (GM/Ford) have policies that are more to your liking (Ferraris) doesn't mean that Apple has to have them. If you don't want to line a company's pockets for a phone "that does not include subsidy", you don't have to. Buy a Treo or whatever... My original point (and analogy) about your choice as a consumer stands.
  • Reply 76 of 116
    cosmonutcosmonut Posts: 4,872member
    Quote:
    Originally Posted by DaveGee View Post


    No contract from day 1?!?! I'm betting that when you first signed up you certainly were under contract.

    Dave



    I just signed up in about late April. I recall being surprised that there was no contract. They may not have required one since I also got (gasp!) home phone service.
  • Reply 77 of 116
    brussellbrussell Posts: 9,812member
    Quote:
    Originally Posted by Neruda View Post


    What you want does not directly dictate how Apple/AT&T sell the iPhone. Just because other companies (GM/Ford) have policies that are more to your liking (Ferraris) doesn't mean that Apple has to have them. If you don't want to line a company's pockets for a phone "that does not include subsidy", you don't have to. Buy a Treo or whatever... My original point (and analogy) about your choice as a consumer stands.



    Not buying isn't the only way to influence corporations. Bitching about them to others is also a perfectly legitimate way to voice consumer opinion. I really don't get this "we shouldn't ever criticize corporations" attitude.
  • Reply 78 of 116
    kavikkavik Posts: 37member
    Well, should the plans with AT&T be really unattrative and we find out that the iPhone *is* unlocked, it would be cheaper for me to sign up with AT&T and then cancel after a month then to have to cancel my T-Mobile service.
  • Reply 79 of 116
    kickahakickaha Posts: 8,760member
    Quote:
    Originally Posted by BRussell View Post


    Not buying isn't the only way to influence corporations. Bitching about them to others is also a perfectly legitimate way to voice consumer opinion. I really don't get this "we shouldn't ever criticize corporations" attitude.



    Well, endlessly whining on online forums is just pissing in the wind. If you want them to change, bitch *to them*. I can't tell you how many people will get online to whine, bitch and moan, but when you ask them "Have you {mailed/told/called/sent a bug report to} the company in question?" you get back "I don't have time for that!" Ha. Some people just prefer bitching to actually having the situation change to where they don't have anything to bitch about.



    Gather grassroots support if applicable, organize a letter writing campaign if you like, but if the end result isn't getting the information *to the company in a direct way*, it's a waste of time. Companies need to be told what's wrong before they have any incentive to change, and they need to be told directly. Otherwise you're not being an effective consumer, just part of the problem.



    IMO.
  • Reply 80 of 116
    nerudaneruda Posts: 435member
    Quote:
    Originally Posted by BRussell View Post


    I really don't get this "we shouldn't ever criticize corporations" attitude.



    I don't think anyone has said anything even remotely similar to "we shouldn't' ever criticize corporations" on this thread. At least I haven't. What I have said is that Apple/AT&T can generally decide how they provide their products/services and that a cancellation fee is not per se illegal. Just don't impugn the cancellation fee's legality without providing any basis in law or fact. Criticize the fee all you want. Kickaha's post provides sensible and pragmatic suggestions on how to do so.
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