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Sprint's Termination Fees Were Legal, But Too High - Lawyer

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NEW YORK (Dow Jones) A California jury ruled on Thursday that Sprint Nextel didn't violate laws with its early termination fees, but the carrier may still need to pay damages.

The jury for the Alameda County California Superior Court determined that while Sprint customers paid $73.8 million in early termination fees, the breaches of contract caused losses to Sprint in the amount of $225.7 million.

But in order for Sprint to score a victory, the jury needed to rule the carrier's losses neared $300 million, according to Scott Bursor, the attorney for the plaintiffs.

"If Sprint is claiming they won, they have mathematical problems," said Bursor. "The jury determined that Sprint overcharged customers in California to the tune of $74 million, and rejected Sprint's billion dollar damage cross claim."

Sprint dismissed Bursor's statements.

"No, the jury did not determine that," said Sprint Public Affairs Manager John Taylor. "The jury determined that Sprint appropriately collected $74 million in early termination fees."

Bursor further said Sprint could wind up paying damages of up to $75 million, or the difference between the $300 million that Sprint claimed the contract breaches cost the carrier, and their actual losses, which the jury determined was $225.7 million.

Taylor said Sprint does not expect to pay any damages to the class of plaintiffs, since the jury ruled that the fees Sprint collected were appropriate.

The trial won't be over until the judge decides on certain aspects of the case, including damages. But a decision could be pushed back until similar cases with Verizon Wireless and AT&T go to trial in the same court.

"We will continue to defend the claims brought in this case and we are focused on the remaining proceedings," Sprint Spokesman Matthew Sullivan said.

The principle of the fees, which incur when a customer breaks their wireless contract before it ends, is being debated around the country from courts in Oakland, Calif., to a Federal Communications Commission hearing in Washington, D.C. Consumer advocacy groups and the plaintiffs argued that it is an unfair measure to keep customers from leaving.

Wireless carriers have long enforced penalties on subscribers who break out of their one- or two-year service contracts early. The carriers argue that the fees are a necessary measure because they subsidize part of the cost of the cell phone and are needed to recoup those expenses.

Regulators and consumer advocates are pushing to end the practice, particularly as carriers are promising to open their networks.

"We are concerned that the wireless industry has become a cozy cartel of a few dominant providers characterized by consumer lock-in and limited device offerings," Chris Murray, senior counsel for consumer advocacy group Consumers Union, said in a statement.

The California class-action suit, originally filed in 2006 and argued over the course of a month, covered customers who had Sprint service between July 1997 and March 2007. The jury had to decide on portions of the case involving the damages and ruled in Sprint's favor.

"The jury verdict speaks for itself," Sullivan said. "We're pleased that upon hearing all the testimony and examining all the evidence, the jury recognized that Sprint makes a significant investment in its customers through reduced handset prices and discounted monthly rates."

The plaintiffs had sought "tens of millions of dollars" in damages, according to Sullivan.

Verizon Wireless applauded the ruling.

"What we saw here amongst all the rhetoric and debate is some common sense of some typical consumers - that being the jury," said James Gerace, a spokesman for the carrier.

Verizon Wireless expects its trial to begin shortly. AT&T is expected to follow.

T-Mobile USA, a unit of Deutsche Telekom, said it is on track to introduce a more flexible policy, which it expects to unveil before the end of the first half.

The issue of subsidies and early termination fees grew even more prominent with AT&T's decision to cover a significant portion of the cost of the new iPhone, driving it down to $199 from its original $499 price tag. AT&T bears a lot of risk in signing up customers because of the frequent occurrence of customers breaking their contracts early and unlocking their iPhones for use in other carriers.

Shares of Sprint closed Thursday down 37 cents, or 4.4%, to $8.08. Recent after-hour trades pushed the price up to $8.10.

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

(Fawn Johnson contributed to this report.)

(END) Dow Jones Newswires

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