When William Costley wanted to cancel his T-Mobile cellphone service because its signal was spotty near his new home in Tuscon, Ariz., 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 cellphone customers in touch with people seeking a cellphone contract. For a $20 fee, the site linked Mr. Costley with another Celltrade visitor who took over his service.
Terminating a cellphone contract before the contract has run out can be a costly affair, with fees running as high as $250. Now, a growing number of start-ups are offering consumers a way around such penalties.
Making use of a loophole in cellphone contracts, some Web sites help users to 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 to get 350 people out of their contracts since its launch seven months ago. CelltradeUSA won't provide exact figures, but CelltradeUSA 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 yet.
The Web sites make use of a cellphone-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 cellphone contracts include a phone, cellphone 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 cellphone company, and sometimes get a free phone and accessories from the unhappy customer.
While customers may be excited at the prospect of avoiding a termination fee, some cellphone-service providers are not so enthusiastic about the new Web sites. Cellphone 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 pro-rated 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.
But a Sprint Nextel Corp. spokeswoman argued the opposite. "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, Mr. 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 cellphone 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 cellphone 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 spokesperson 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 cellphone 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 Communications Commission, which could override all state decisions. The FCC is still reviewing the petition and has no estimate on when a decision is expected.
It costs a cellphone 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. "Obviously, we would prefer that a person would stay with the contract and renew the contract and stay with us forever," said Mark Siegel, a spokesman for Cingular Wireless.
Yet the sites could also be beneficial to the cellphone companies, as they also deliver a potentially more satisfied customer who may stay on the contract longer than the dissatisfied one who wanted to get out of it, according to Mr. Doriot and others. If the companies accept the cancellation fee and let the customer go, rather than use these sites to transfer the contract to someone else, he said, they lose out in the end.
Not every user who visits the sites is successful, however. Brandon Schack tried CelltradeUSA.com, but received no interest from fellow visitors. Mr. Schack, whose Nextel phone received poor reception in both his new home and his office, offered the remaining 20 months of his contract and his Blackberry 7510 for free -- but he was unable to find a taker for his offer.
"After probably about a month, I took it down," said Mr. Schack, a 25-year-old financial analyst in Ypsilanti, Mich. He didn't have to pay the CelltradeUSA fee. But he ended up paying $200 to terminate his contract and switched over to Verizon, a carrier for which his company offers "pretty significant discounts."