A deal breaker for cell users

For a fee, sites help callers sell contracts, avoid stiff penalties

Lauren Tara Lacapra, The Wall Street Journal

Monday, December 4, 2006

When William Costley wanted to cancel his T-Mobile cell-phone service because its signal was spotty near his new home in Tucson, he got a surprise: The mobile operator wanted a $175 termination fee for ending his contract three months before its expiration.

Unwilling to pay the fee, he searched the Internet for help. He found it on CelltradeUSA.com, a Web site designed to put unhappy cell-phone customers in touch with people seeking a cell-phone contract.

For a $20 fee, the site linked Mr. Costley with another Celltrade visitor who took over his service.

Terminating a cell-phone contract before the contract has run out can be a costly affair, with fees running as high as $250. Now, a growing number of startups are offering consumers a way around such penalties.

Making use of a loophole in cell-phone contracts, some Web sites help users sell their contracts. Among the sites offering such services: CelltradeUSA.com, Resellular.com, Cellswapper.com and Wirecracker.com. The sites charge fees ranging from $14.99 to $50 — well below the usual termination fees.

Wirecracker.com allows customers to break contracts for a fee of $50, as long as they sign up for a new service through the site.

Lee Hunt, co-founder of the site, says it has helped 350 people get out of their contracts since its launch seven months ago.

CelltradeUSA won't provide exact figures, but co-founder Eric Wurtenberg estimates the number of swaps is in the thousands. The sites declined to provide revenue data, but with a relatively low number of people using the sites, none of them has broken even.

The Web sites make use of a cell-phone contract loophole that's available to nearly all customers with long-term plans: Companies allow people to get out of contracts if they transfer the remaining time to someone else, once the provider approves the new customer through a credit check.

While some cell-phone contracts include a phone, cell-phone companies don't require it to be transferred to the new customer or returned.

Many customers using the Web sites offer their phones as an incentive or sell them to the people taking over their contracts.

As for the contract buyers, they can avoid a registration fee, get a shorter contract than if they had signed with a cell-phone company, and sometimes get a free phone and accessories from the unhappy customer.

While customers may be excited by the prospect of avoiding a termination fee, some cell-phone service providers are not so enthusiastic about the new Web sites.

Cell-phone companies say the fee helps offset the discounts they offer customers for expensive handsets, as well as customer-acquisition costs.

"We don't endorse those sites," said Tom Pica, spokesman for Verizon Wireless. "We actually advise customers to be careful of using any kind of Web site where they're not familiar with the vendor."

As an alternative, Verizon is introducing a prorated early-termination fee, which is reduced as the contract progresses. It will be available to current customers who sign a new contract, as well as new customers.

A Sprint Nextel Corp. spokeswoman was less critical of the swaps.

"We welcome all potential new customers to Sprint, so we're excited to have a new customer who wants to enjoy our services," she said.

T-Mobile, Costley's former service provider, declined to comment.

Termination fees are a hot issue among consumers, who often want out because service is poor or because the monthly costs turn out to be more than they expected.

Roughly 47 percent of cell customers would switch or consider switching cell-phone companies if early termination fees were abolished, according to a July 2005 survey by the U.S. PIRG Education Fund. However, because of the fee, only 3 percent of customers go ahead with terminating the contract, the survey found.

Consumer groups have filed lawsuits against cell-phone companies in several states, charging that early termination fees are unlawful, among other complaints, and legislation was introduced in New York this year by Assemblyman Daniel O'Donnell to allow cellular customers to cancel contracts without a termination fee until they have received their first bills. No action was taken on his legislation in the latest session, but a representative says he plans to reintroduce it in the next one. Wisconsin Sen. Russ Feingold introduced legislation last September to allow military personnel and their families to cancel cell-phone contracts without a penalty, if they are transferred overseas.

In California, a state appeals court upheld a decision that ordered Cingular to refund early termination fees charged between January 2000 and May 2002 because, the court said, the company failed to provide customers with a long enough trial period. The Cellular Telecommunications and Internet Association, an industry group, responded to these state lawsuits and legislation by petitioning the Federal Communication Commission, which could override all state decisions. The FCC is reviewing the petition and has no estimate on when a decision is expected.

It costs a cell-phone company approximately $350 to $400 to acquire a new customer, according to Phil Doriot, a partner in the consulting firm CFI Group, who has studied company performance and customer satisfaction for major cellular service providers.

Swapping sites

Making use of a loophole in cell-phone contracts, some Web sites help users sell their contracts. Among the sites offering such services:

• CelltradeUSA.com

• Resellular.com

• Cellswapper.com

• Wirecracker.com

The sites charge fees ranging from $14.99 to $50 — well below the usual termination fees of cell-phone companies.