Effective June 1, AT&T to up early termination fees for smartphone users to $325

Fri, May 21, 2010

News

The Wall Street Journal reports that effective June 1, AT&T will be raising its early termination fees for smartphone users from $175 to $325. The Journal notes that the upcoming change may very well be in anticipation of AT&T losing iPhone exclusivity, though it remains unclear when the iPhone will become available on other US carriers.

Since its release in 2007, iPhone users on AT&T have been hampered buy numerous call quality and bandwidth issues. And though AT&T has invested billions of dollars into beefing up their cellular infrastructure, problems still persist, especially in big cities like San Francisco.

With Verizon largely regarded as having the most reliable and robust network in the US, AT&T’s either is, or should be, wary of AT&T users flocking to Verizon in droves once D-day arrives. Though AT&T Wireless CEO Ralph De La Vega recently stated that AT&T isn’t worried about losing current iPhone customers, it’s hard to take that at face value. De La Vega recently explained that over 80% of iPhone users are on family or business plans, which according to De La Vega, makes them less likely to switch over to other carriers. While that logic may ordinarily make sense, the iPhone was clearly a powerful enough incentive to attract millions of new users over to AT&T in the first place, and a good number of those subscribers undoubtedly left similarly “sticky” family and business plans ┬ábehind. There’s no reason to assume such a scenario won’t play out again.

Hence, a mammoth $325 penalty for terminating a phone contract early. An AT&T spokesman told the WSJ that the recent change “wasn’t related to any device” but the timing seems awfully fish to us, don’t ya think?

To be fair, AT&T isn’t the only company with such exorbitant termination fees. Verizon’s checks in at $350 for example.

Lastly, keep in mind that the only reason consumers can purchase a device like the iPhone for so cheap is because carriers are willing to subsidize in the first place. Carriers are willing to take the initial hit because they know that they’ll more than make up for the cost over the course of a 2-year contract. With nothing to keep consumers “loyal”, there’d really be no incentive for carriers to subsidize devices in the first place. And then, we’d be stuck paying about $600 for an iPhone.

I guess you have to take the good with the bad. Though we should mention that there are currently a few lawsuits pending regarding the legality of exorbitant termination fees.

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