Small fees increases for consumers are resulting in massive gains for AT&T.
In April and June, AT&T T, +1.71% has quietly increased the “administrative fee” it charges wireless customers from 76 cents to $1.99, according to a report released Wednesday by Walter Piecyk, an analyst with brokerage firm BTIG. The fee, which does not apply to prepaid lines and some large enterprise contract customers, applies to all customers with contract-based plans. The company stands to earn roughly $800 million in additional revenue, according to Piecyk’s calculations.
“We believe the effective $1.23 increase per line impacts at least 85% of the 64.5 million post-paid phone lines in service,” Piecyk said.
AT&T’s fee is just the latest example of the growing list of charges consumers face, not just for mobile phone service. “The wireless industry is an offender, but so are the cable industry, airlines, and hotels,” said Jonathan Schwantes, a senior policy counsel at Consumers Union, the policy arm of Consumer Reports. “It’s across many different industries.”
In an emailed statement, AT&T described the charge as “a standard administrative fee across the wireless industry, which helps cover costs we incur for items like cell site maintenance and interconnection between carriers.” The company did not respond to questions about whether those costs have actually gone up or how it covered those costs prior to instituting the administrative fee.
AT&T has likely not faced higher costs in these arenas, Piecyk said. “It’s hard to believe that interconnection costs have increased in the past 6 months enough to justify this fee increase,” the brokerage firm said. “In fact, wireless operators have been crediting lower interconnection costs when explaining why their cost of service was in decline. Not surprisingly, we don’t recall any reductions in administrative fees by AT&T or its peers associated with reductions in interconnection expenses.”
Instead, Piecyk reckons the higher fee is being used to offset the costs associated with building its network and its merger with Time Warner.
AT&T’s administrative fee was first introduced in 2013 and attracted a great deal of criticism. Verizon VZ, +3.37% and Sprint S, +0.09% charge similar administrative fees, whereas T-Mobile TMUS, +0.71% made a splash last year when it chose to stop charging fees and taxes. Prepaid carriers like MetroPCS and AT&T subsidiary Cricket Wireless also don’t charge fees. (Sprint did not immediately return a request for comment.)
A spokesperson for Verizon told MarketWatch that the company has not raised its administrative fee since December 2015. On customers’ bills, it said the fee “helps defray certain expenses we incur, including charges we, or our agents, pay local telephone companies for delivering calls from our customers to their customers; fees and assessments, on our network facilities and services; property taxes; and the costs we incur responding to regulatory obligations.”
Consumers are being nickel-and-dimed with fees
Wireless carriers are far from the only companies to engage in this practice, Schwantes said. In fact, the growing prevalence of such fees has led Consumer Reports, a nonprofit magazine that tests consumer products and services, to start a new initiative called “What the Fee.” The consumer-driven campaign, which launched Wednesday, aims to identify the myriad fees that consumers encounter, from resort fees and bank fees to convenience fees charged by online ticket sellers and utility companies.
The campaign’s first target is the cable industry, and it will take aim at the optional add-on fees companies like Comcast CMCSA, +1.16% and Charter Communications CHTR, +0.57% charge customers. They often show up on monthly bills as broadcast fees, regional sports fees and HD technology fees. As Consumer Reports noted, these fees have also increased over the years, sometimes by as much as 50%. (Charter did not immediately return a request for comment.)
In response to the “What the Fee” campaign, Comcast said it designed its Xfinity bill based on customer feedback to make it easier to understand. “The broadcast television and regional sports network fees are itemized on our bill so that our customers can clearly see those costs,” it said. The company said it also provides customers with a complete list of charges and fees to consent to before processing any new service or change of service orders.
Such fees are typically noted alongside taxes and other surcharges that aren’t set by the company in question, Schwantes said. That can make it harder for customers to recognize these fees for what they are: optional add-ons. Unfortunately, consumers have limited recourse. “Consumers can’t opt out of them,” Schwantes said. Unless, that is, they cancel the service.