AT&T increases activation fee by $4 for customers with 2-year contracts

Tools

AT&T Mobility (NYSE: T) bumped up its standard activation fee for customers who choose a two-year contract from $36 to $40. The change comes as AT&T customers are increasingly choosing to forego contracts in favor of financing their devices through AT&T's Next handset upgrade program.

AT&T confirmed the changes to FierceWireless, which went into effect on June 8.

"Customers looking for a great value can get it with AT&T Next and Mobile Share Value plans," AT&T said in a statement. "With AT&T Next, customers can get a new device every year for $0 down, plus no activation, financing or upgrade fees. Customers choosing a 2-year contract plan will experience a four-dollar activation fee increase beginning June 8. Customers on 2-year plans choosing to upgrade to a new device will experience a four-dollar upgrade fee increase beginning June 8."

AT&T spokesman Mark Siegel told FierceWireless that the carrier made the increase because "there are administrative and other costs associated with activating or upgrading a device." He reiterated that the increase "applies only to those on traditional two-year service agreements."

The change is the latest tweak carriers have made to the cost of activating devices on their network. AT&T and other carriers routinely waive or change activation fees as part of promotions. For example, in February, Verizon Wireless (NYSE: VZ) eliminated its $35 activation fee for new customers who signed a two-year contract as part of a short promotion.

Verizon currently charges a $35 activation fee, but will give customers credit for their activation fee within two billing cycles if they sign up for Verizon's Edge handset upgrade plan. Sprint (NYSE: S) charges a $36 activation fee. T-Mobile US (NYSE:TMUS) says that any new customers choosing its no-contract Simple Choice plans will be activated without a fee.

It's unclear how many AT&T customers will be affected by the fee change. There has been a marked shift among customers away from two-year contracts. Enrollment in no-contract smartphone upgrade plans among U.S. consumers has more than quadrupled since September 2013, going from 7 percent to 31 percent by the end of the first quarter of 2014, according to a report earlier this month from the NPD Group.

At AT&T specifically, the carrier said it expects around 3.2 million AT&T Next smartphone sales in the second quarter, compared to 2.9 million in the first quarter. AT&T said Next sales have been rising throughout the second quarter, and are expected to be around 50 percent of all sales in the second quarter. That compares to around 40 percent in the first quarter (or 35 percent when taking out accelerated upgrades).

Further, AT&T said that by the end of the second quarter, around one-half of the company's postpaid smartphone customer base will be on a no-device-subsidy Mobile Share Value pricing plan, and that figure will grow to around two-thirds by year-end. In the first quarter, AT&T said more than a quarter of its smartphone subscribers were on no-device-subsidy pricing plans.

Next and AT&T's Mobile Share Value shared data plans go hand in hand, in that customers who choose to finance the cost of their device through Next then get access to discounted Mobile Share Value service pricing and earlier device upgrades.

Related Articles:
AT&T expects 800,000 postpaid subscriber adds in Q2, 3.2M Next additions
AT&T's Stephens: T-Mobile's ETF offer didn't impact us much in Q1
AT&T surprises in Q1, posts 625K net postpaid adds driven by phones, tablets
Verizon fuels price war by cutting $35 activation fee until Feb. 17