AT&T (NYSE:T) has been a master at finding clever ways to charge its wireless customers more than the advertised price.
One of the key ways it has managed to do that is via something called activation fees. That's a surcharge tacked on after customers agree to buy a new line of service or upgrade an existing one. It's the sort of last-minute, unexpected fee that straddles the line between being outrageous and a nuisance.
It's a low enough number that people probably won't walk away if they have already gone through the trouble of signing up for new service or to upgrade their phone. In many ways, it's like a charge my wife and I once paid when we were buying a house. It was a $300 charge listed on our closing statement as "miscellaneous fee." It was never explained and the mortgage company correctly judged that tacking it on would not be enough for us to walk away from (or at least delay) our house purchase.
Still, no matter how small or large fees may be, nobody likes paying them. That is not stopping AT&T from reportedly increasing existing activation fees and creating a new one.
What is AT&T doing?
The company plans to raise its activation fees for customers signing one- and two-year contracts while adding an activation fee for bring-your-own-device customers beginning Aug. 1, according to Droid Life, which cited unnamed sources. The Android news website detailed the changes on its site:
The new activation/upgrade fee for one and two-year agreements is raising from $40 to $45, which gives AT&T the highest activation fee in the industry (Verizon is still at $40 for now). Going forward after August 1, should you choose to sign-up for a new contract to receive a discounted phone, you will pay $5 more than you used to.
The company is also adding a $15 activation fee for people who finance their devices over time, according to Droid Life. Previously, those users hadn't paid anything at all. The site also reported that "customers who are new to AT&T Next will have to pay a $15 activation fee when they pick up a new phone. This $15 fee also applies to those who bring their own device (BYOD) and sign-up for a new line of service."
This seems like an odd choice
AT&T seems to be a bit tone deaf to rising tides in its industry that are pushing for the elimination of sneaky fees like these. In a charge led by T-Mobile and somewhat adopted by Sprint, carriers are looking to simplify billing and offer transparency for customers. These policies, which T-Mobile calls Un-carrier, have helped the company to lead the industry in growth for around two years.
This type of fee has been par for the course for AT&T and its own results suggest that it has not yet pushed customers away with these practices. But just because it has not happened previously does not mean it won't in the future.
In a culture where younger users seem increasingly willing to cast aside things their parents considered necessities, it seems very possible that a backlash could build. Gouging people just because you can made sense when AT&T (and Verizon) had clearly better networks. That's no longer the case and on the latest RootMetrics survey of wireless networks, T-Mobile and Sprint have largely caught up. They also score better now than AT&T and Verizon did a year ago.
AT&T is playing a game that may soon be over. There's simply no reason for customers to pay these types of fees anymore when they can simply leave for another provider that does not charge them.
This increase will probably pay off in the short term. AT&T has not seen an exodus of customers yet, but the money it will gain is sacrificing its long-term relationship with its subscriber base at a time when it should be strengthening it. The company should be lowering or dropping these fees, and it will eventually learn the mistake it's making.
Daniel Kline has no position in any stocks mentioned. He did not throw up while doing hot yoga this week and considers that a win. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.