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Verizon Wireless Early Termination Lawsuit Settlement Puts Sprint at Risk

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NEW YORK (Dow Jones) Verizon Wireless agreed to settle a class action lawsuit over early termination fees for $21 million, which bodes poorly for Sprint Nextel and its own trial.

Early termination fees, which are incurred when a wireless subscriber breaks his or her contract before it ends, are in the sights of the Federal Communications Commission, which wants to construct a national framework for charging them.

In its way are consumer advocacy groups and several state lawsuits. Verizon Wireless removed one obstacle with its settlement, while Sprint appears to want to see its case carried through.

Verizon Wireless on Tuesday said the settlement resolves the plaintiffs' claims that it was unfairly charging fees for customers who broke out of their contracts early, although the company didn't admit to any wrongdoing. The settlement covers all of the lawsuits throughout the nation, according to Verizon Wireless spokesman Jim Gerace.

"This suit was a distraction," he said. "This was a quick way to resolve it."

Sprint, meanwhile, awaits a decision by Judge Bonnie Sabraw of Alameda County, Calif. Superior Court over whether it violated state law with its early termination fees. It is further along its case than Verizon Wireless, which faces the same judge and plaintiffs. But Verizon Wireless' quick action in resolving its dispute suggests a lack of confidence in the pending decision.

"I don't supposed they would have settled unless they really believed there was real legal liability at issue here," said Chris Murray, senior counsel for the consumer advocacy group Consumers Union.

Sprint spokesman Matthew Sullivan declined to comment on the Verizon Wireless settlement, or whether Sprint was working on its own settlement.

"We're focused on the remaining legal proceeding," he said, noting that while there isn't a specific timeframe for Judge Sabraw's decision, it is expected within the next few weeks.

Wireless carriers have long enforced penalties on subscribers who break their one-year or two-year service contracts early. The carriers argue that the fees are a necessary measure because they pay for a part of the cost of the cell phone and need to recoup those expenses. For example, AT&T which also has a similar suit pending, is paying Apple a subsidy so the new iPhone can be sold for $199. A spokesman for AT&T declined to comment on the settlement.

FCC Chairman Kevin Martin has been pushing to establish national rules curtailing the wireless service providers' ability to charge the fees. He also floated the idea of pre-empting state rules, which consumer advocate groups argued against because they want the suits to be resolved first.

The resolution of the lawsuits may accelerate adoption of a national framework for the fees.

For Verizon Wireless, the $21 million will be doled out to plaintiffs and will cover the attorneys' fees and represents a cap on what the company will have to pay, Gerace said. It effectively ends a trial that began last week.

An attorney for the plaintiffs wasn't immediately available for comment.

Even if the judge rules that Sprint is violating state law, the company predicted it won't have to pay any damages, Sullivan said, because a jury ruling in June found that Sprint customers had paid $73.8 million in early termination fees, while the company had lost $225.7 million due to breaches of contracts.

"Our feeling is that we won't owe any damages," he said.

But Scott Bursor, attorney for the plaintiffs, said last month after the jury ruling the fees were too high, and said he expects Sprint to pay damages.

The California class-action suit was originally filed in 2006 and went to trial last month.

Verizon's stock recently traded down 0.2% to $35.30. Sprint's shares fell 1.8% to $8.80.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires

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