Yesterday, we heard that a California Supreme Court judge has ruled that early-termination fees on cell phone contracts are illegal. This is HUGE. Contracts and early-termination fees basically define the cell phone industry in the United States. Could we be headed for a major change if this decision holds?
By locking consumers into 1 to 2-year contracts with an early-termination fee tacked on, carriers are able to guarantee a certain amount of revenue from their subscribers. By doing this, they are able to offer subsidies on the actual hardware. This is why the iPhone 3G is only $199, but requires a 2-year contract.
This is completely different from Europe and other markets where consumers pay full price for their hardware, but are not forced to sign any contracts.
There will be appeals by the cell carriers, but if this holds, what could happen?
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