Verizon Wireless agrees to pay $21 million over termination fees

Verizon Wireless is the first major carrier to settle a case with customers who claim the company's early termination fees are excessive and unfair.

Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.

Verizon Wireless agreed to pay $21 million to settle a lawsuit filed by customers who claim the company's early termination fees are excessive and unfair.

Details of the settlement aren't public. But a Verizon spokeswoman said that the settlement will put to rest claims filed by customers in California as well as customers that are part of a nationwide class action lawsuit.

Verizon denied any wrongdoing. And the spokeswoman pointed out that Verizon Wireless was the first cell phone operator in the U.S. to establish a pro-rated early termination fee that decreases over the time of the contract. Since then, the other three carriers, AT&T, Sprint Nextel, and T-Mobile, have all pledged to go to prorated fees .

The settlement comes as these cell phone operators take heat from the Federal Communications Commission and Congress over the fees. The FCC held a hearing in June in which unhappy customers and consumer advocates railed against the companies for their business practices.

FCC Chairman Kevin Martin said he believed the fees, which in some cases have exceeded $200, were excessive. And he said he was concerned the early termination fees were not being used as a means to recover legitimate costs, but rather as a means to lock customers into a service provider.

The phone companies have argued that the fees are necessary to recover costs . Specifically, they say the early termination fees help cover the cost of phones, which the carriers subsidize and offer as part of a service contract.

So far the legal battles brewing against the phone companies have been a mixed bag. Cell phone users in California initially formed a class in 2006 for a lawsuit against all four major carriers: AT&T, Sprint Nextel, T-Mobile, and Verizon Wireless. But the court separated the cases and each carrier is battling the lawsuits on their own.

Sprint Nextel won a victory in its battle when a jury decided last month that customers had indeed broken their contract with the carrier and that they owed the company $225 million, far more than Sprint Nextel was able to collect to from customers terminating their services early.

Now the judge in the case will have to decide whether the contract that Sprint imposed on its customers was even legal according to California law. A decision on that is expected within weeks.

But with the Verizon Wireless settlement, it looks like the plaintiffs' case may have had some legal merit. A Sprint spokesman declined to comment on what Verizon's settlement might mean for Sprint. But he said the company is confident that no matter what happens it won't be asked to pay damages since a jury already found that customers owed the company more than Sprint was ever able to collect in early termination fees.

One thing is certain. The battle over these fees is far from over. Verizon may have settled, but the issue is still very much alive in the hearts and minds of customers. And the FCC and Congress just may have to take action. The big question now is how far will the government go?