May 23, 2010

AT&T To Charge More For Broken Contracts

According to AT&T Inc, people who own smartphones, such as the iPhone, will be charged higher fees if they break their two-year contracts, while regular mobile phone buyers will have to pay a smaller fee when breaking a contract.

AT&T announced beginning June 1 the fees for breaking a contract will cost smartphone owners $325, up from $175. Buyers of regular phones will have fees reduced to $150. The move is to better align fees with the phones' actual costs.

Early termination fees go down for every month customers stay in their contract -- $10 per month for smartphones and $4 for regular phones. If a smartphone contract is broken after 6 months, the termination fee would be reduced by $60 to $265.

AT&T charges customers $199 for the latest iPhone model, but pays Apple much more than that. AT&T makes up the difference through the customer's service fees over a two-year contract period. With the new higher termination fees, AT&T should break even if the customer does end the contract prematurely.

Following the same logic as AT&T, Verizon Wireless doubled its smartphone termination fees in November, from $175 to $350. Sprint Nextel and T-Mobile USA still charge the same termination fees for all phones: $200. All three companies also pro-rate the fees for customers who leave later in their contracts.

The Federal Communications Commission has questioned Verizon Wireless about the higher termination fees, but hasn't taken any action. The pro-rating of fees came after carriers settled several class-action lawsuits by customers who found it unfair that they paid full termination fees when breaking the contract after nearly two-years.


On the Net: