DALLAS — Dallas-based AT&T Inc.
says it is drastically increasing the fee it charges smart-phone
customers who want to escape their two-year contracts ahead of
schedule. The early termination fee for smart phones will jump from $175 to $325, effective June 1.
Anyone who renews a contract or signs a new contract for any AT&T smart phone, including the iPhone, or 3G netbook will be subject to the higher fee. Existing contracts will not be affected.
However, Apple Inc. is expected to unveil a new version of the iPhone at a conference in early June, and anyone who buys that new iPhone through AT&T will be subject to the higher fee. Should Verizon Wireless eventually get rights to sell the iPhone, the new fee will make it much more expensive for AT&T customers to switch to Verizon mid-contract.
Apple and AT&T have not said when AT&T’s exclusive rights to the iPhone expire, but many analysts say they could conclude at the end of this year. AT&T said the higher fee is fair. It also said it’s reducing termination fees for its basic phones.
“The idea is, and we think that it’s fair approach,
that if you spend less on a device, your early termination fee should
be less,” said AT&T spokesman Mark Siegel. “If you spend more, your early termination fee should be more.”
He said the decision to implement the higher fee was unrelated to the iPhone or any other particular phone.
AT&T also said it will lower the early termination fee on its basic phones by $25, to $150.
The fee on smart phones will be reduced by $10 each month of the two-year contract, while the basic phone fee will decline by $4 a month.
Wireless carriers justify the fees by pointing out
that the cost of a new phone like the iPhone is heavily discounted from
what the carrier pays the manufacturer.
For carriers to recoup those discounts and turn a
profit, they need subscribers to commit to long-term service contracts.
The termination fees give customers a method to get out of their
contracts while ensuring the carriers won’t have to take a loss on the
phone.
The Federal Communications Commission recently asked the major U.S. carriers to explain their termination fees, but it’s not yet clear how the FCC will respond to the higher AT&T fee.
“We recognize that wireless carriers may have various rationales for (early termination fees),” the FCC wrote in a letter to AT&T
in January. “At the same time, these fees are substantial (and in some
cases are increasing) and have an important impact on consumers’
ability to switch carriers.”
The agency did not return calls seeking comment about AT&T’s decision to raise its fee. Siegel noted, though, that AT&T’s new fee still will be less expensive than Verizon’s $350 early termination fee for smart phones. Verizon Wireless boosted its smart-phone fee from $175 late last year. But Verizon was heavily criticized for the change and eventually reduced the number of phones that were covered by the new fee.
AT&T’s Siegel said all
phones listed under the “smart phone” category on wireless.att.com will
be covered by the new fee. In addition to the various iPhone models,
that list includes BlackBerrys, the Palm Pre Plus and other phones.
Telecom analyst Jeff Kagan thinks most AT&T customers will stay with the company even if Verizon gets the iPhone. “There may be some chaos at first, but it will soon calm down and both should do well,” he said.
Kagan noted that the higher termination fees won’t affect any AT&T customers who simply complete their original agreements.
“I think the majority of customers understand what
early-termination fees are and that the company is giving them a loan
of sorts that needs to be repaid,” he said.
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