Zill vs. Sprint Spectrum Limited Partnership, JCCP No. 4332, Case No. RG03114147

The Situation

In December 2005, a consumer class action lawsuit was filed against Sprint Spectrum LP and Wirelessco, LP, accusing the company of anticompetitive practices by the companies. Plaintiffs sought restitution and injunctive and declaratory relief against "the secret locking of cell phone handsets to make it impossible or impracticable for customers to switch cell phone service providers without purchasing a new handset." Specifically, the plaintiffs argued that mobile carriers intentionally disable handsets to be ported between networks, thereby making it more expensive for customers to switch carriers. This, in turn, allegedly reduces competition and allows carriers to charge supracompetitive prices. Similar suits were filed against Verizon Wireless, AT&T Mobility (formerly Cingular), and T-Mobile. Plaintiffs retained an economist and survey professional who determined that locking diminished the value of a handset by $55.60. With over 14 million handsets sold during the alleged damages period, plaintiffs claimed that the locking of Sprint handsets inflicted economic injury of approximately $790 million in California alone.

NERA's Role

Sprint Spectrum and Wirelessco retained NERA Affiliated Consultant Dr. William Taylor and Senior Vice Presidents Christian Dippon and Dr. Kent Van Liere to address the charges and opine on the economic impact of the alleged practice of locking handsets. The experts presented their findings in testimony before the superior court of California for the County of Alameda. The NERA team found serious flaws in the survey conducted by plaintiffs and, based on actual market evidence, determined that consumers generally do not favor unlocked CDMA handsets over locked CDMA handsets, hence finding no diminution in handset value. Furthermore, given the competitive choices faced by consumers, NERA's experts found that consumers make informed tradeoff decisions, comparing the prices of discounted service packages (typically including locked phones) to the prices of unlocked phones. Given the competitive nature of the mobile industry and the competitive choices presented to consumers, NERA's team found no support for the alleged anticompetitive behavior.

The Result

On 2 October 2007, the parties entered into a settlement. As part of this settlement, Sprint denied any wrongdoing and settled the suit "so that we can continue to focus on our business."

Consistent with the testimonies of Dr. Taylor, Mr. Dippon, and Dr. Van Liere, Sprint Spectrum and Wirelessco did not have to pay any of the $790 million in alleged economic damages. The settlement also did not conclude that Sprint's locking practices were anticompetitive. Sprint did agree to provide departing Sprint PCS customers with the code necessary to unlock their phones' software, provided the said phone was deactivated and the subscriber's bills were paid in full.