Planning to Cancel your AT&T iPhone Contract? Be Prepared to Pay $325 ET Fee!

by Gaurav Kheterpal on May 25, 2010

A couple of days ago, AT&T announced that it will raise its early termination fee for smartphone users from $175 to $325, with effect from June 1, 2010. The carrier will reduce the ETF for new and upgrade two-year service agreements for all customers who are buying basic and quick messaging phones. The ETF will decrease to $150 from $175.

With rumors of iPhone being released on Verizon network this summer, this looks to be a desperate attempt by AT&T to hold on to its customers. Will this move work or will it backfire? Time will tell.

Last year, Verizon Wireless recently hiked their own ETF charges to $350 for advanced smartphones. Many analysts criticized the move from Verizon and suggested that it will hamper the carrier’s growth and in turn lure more customers to opt for AT&T. With its latest move, AT&T is now facing accusations that the move is aimed at preventing people from dropping iPhone contracts after the exclusive deal with Apple to provide the iPhone in the US expires.

While the carrier insists that the move has nothing to do with the impending changes in iPhone exclusivity, it is difficult to think of any other reason to bring in radical changes for ETF all of a sudden. There’s some good news as well. As your two-year contract progresses, your ETF goes down by $10 with every passing month. On the whole, AT&T is taking a big gamble. Many analysts believe that it’s a strategy to balance out the discounted smartphone and low sign-up fees. Current AT&T wireless customers who are within their two-year consumer service agreement or have an existing enterprise service agreement will see no change to their current terms.

Davenport &  Co. analyst F. Drake Johnstone believes that AT&T could lose as many as 40% of its current iPhone subscribers once Verizon starts selling a version of the phone. He believes that the recent increase in termination fee is a sign that AT&T is clearly worried about losing customers to a competing carrier. On his concerns about loss of customers, Johnstone cut his rating on T shares to Neutral from Buy.

I’m not fond of switching carriers and I’m sure a majority of readers feel the same. ETF is meant to be a means of recovering legitimate costs associated with subsidizing mobile phones. IMO, $325 is pretty drastic increase from the earlier $175. Was AT&T losing out on subsidy till now? I, for one, do not buy that argument. I hope the FCC is watching.

With iPhone 4G looming, I’m in a fix whether to risk the $325 fee or give it a pass?

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Written by: Gaurav Kheterpal. >. Follow > by: RSS>, Twitter >, >, or Friendfeed >

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