AT&T Raises Early-Termination Fees for Smartphone Subscribers

AT&T Inc. will increase the fees it charges customers who want to end service before a contract expires, a change that can help it recoup costs and make it harder for subscribers to switch carriers.

Beginning June 1, AT&T Mobility, the second-largest U.S. mobile-phone service provider, will increase early-termination fees to $325 from $175 for users of the Apple Inc. iPhone and other devices used for computing on the go, AT&T spokesman Mark Siegel said in an interview today.

Wireless companies usually absorb handset purchase costs, making up the subsidy on monthly service fees later. Termination fees can prevent margin erosion when customers cancel early. AT&T’s increase may also be aimed at preventing subscriber defection if Apple starts selling the iPhone through a rival, said Chris Bulkey, an analyst at Technology Research Group.

“They are raising fees because they need to,” said Bulkey, whose firm is based in Narberth, Pennsylvania. “They definitely have margin pressure.”

The fees will decline by $10 a month over the life of a two-year contract, Siegel said. Previously, the fee dropped by $5 a month over the two-year term. AT&T will reduce the penalty for early termination on cheaper traditional mobile phones, which carry fewer features, to $150 from $175.

The changes apply to new customers and those renewing contracts. Existing contracts won’t be affected, Siegel said.

Neither Dallas-based AT&T nor Apple, which is based in Cupertino, California, has said when or whether AT&T’s exclusivity may end. Apple spokeswoman Natalie Kerris and AT&T’s Siegel declined to comment on the terms of the arrangement between the two companies.

U.S. regulators have recently stepped up scrutiny of fees levied by wireless-service providers. The Federal Communications Commission wants carriers to do a better job explaining various fees and last year demanded an explanation from Verizon Wireless when it raised early-termination penalties.

On May 11, the FCC asked for public comments on the possibility of requiring carriers to provide users with real- time alerts on their wireless usage and related charges.

Verizon Wireless is owned by Verizon Communications Inc. and Vodafone Group Plc. AT&T’s fee change was reported earlier by the Dow Jones Newswires.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net.

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