AT&T Eases Penalties On Mobile Plans
Published on: 15th Oct 2007
Note -- this news article is more than a year old.
WASHINGTON (Dow Jones) The USA based AT&T said Tuesday that it will reduce early termination fees for wireless customers who cancel plans early and allow them to change contracts without restrictions.
AT&T becomes the second major carrier to ease penalties on consumers seeking to exit or alter their calling plans. Verizon Wireless has already taken those steps.
Customers and U.S. lawmakers have criticized phone companies for what some have called unfriendly consumer policies, including flat early-termination fees of up to $200. Companies have been asked to give subscribers more choice and flexibility.
The moves by AT&T and Verizon are likely to put pressure on rivals such as Sprint Nextel and T-Mobile USA to adopt the same approach. In terms of subscribers, AT&T is the nation's largest mobile operator, followed by Verizon.
Sprint, the No. 3 wireless operator, is the target most likely in the crosshairs. The company has lost more than 1 million of its best customers over the past year, owing to poor service and other problems. Most of them have switched to AT&T or Verizon.
Last week, Sprint said it expected to lose an additional 337,000 "postpaid" subscribers in the third quarter. The warning was accompanied by the resignation of Chief Executive Gary Forsee.
Lower cost of canceling
Wireless customers in the U.S. are generally required to sign up for one- or two-year plans, with early-termination fees typically set at $175 to $200. When they want to alter monthly plans, customers are usually required to extend their current contract or enter a new one.
Under AT&T's new approach, the early-termination fee would be progressively reduced over the life of the plan. It would apply "early in 2008" to new and current customers who sign one- or two-year contracts.
Spokesman Mark Siegel said AT&T has not yet determined how much the fee would decline. The company will inform customers shortly before the change takes effect, he said.
Late last year, Verizon became the first company in the industry to reduce its early-termination fee. Customers whose contracts were signed after Nov. 16, 2006, get $5 off their early-termination fee of $175 for each month of service they have completed.
For example, customers who quit a two-year plan after one year would pay a termination fee of $115. If they quit after 18 months, the fee would be $85.
AT&T, meanwhile, will also give consumers more flexibility to change their plans starting in November. Subscribers would no longer have to extend or renew contracts when they switch to one of AT&T's "standard wireless calling plans," the company said.
"Customers have told us they do not like one-size-fits-all approaches," said Paul Roth, AT&T's president of wireless sales and marketing. "They are right, and that is why we have made these important changes."
Verizon enacted the same policy earlier this month.
Other wireless operators such as Sprint and T-Mobile charge flat early-termination fees of up to $200. The shift in strategy by AT&T and Verizon, however, could put pressure on those operators to follow suit.
Sprint and T-Mobile could not immediately be reached for comment.
Tied to incentives
Most wireless customers in the U.S. accept annual contracts because they have little choice. Wireless operators charge up to $500 for new phones, especially fancier handsets, unless subscribers agree to a one- or two-year plan.
Subscribers who select two-year plans reap the biggest savings. At AT&T, for example, the new MotoRazr V9 from Motorola, listed at $499, is available for $299 to customers who sign a two-year commitment. And an LG flip phone listed at $209 can be obtained for free with a two-year contract.
Phone plans tied to annual contracts also tend to cost less. Although all wireless companies offer prepaid service or plans that do not require contracts, per-minute or monthly prices are typically higher.
What's more, those customers are not given sharp discounts on the latest wireless phones and usually have to choose from older models.
By making it cheaper for subscribers to cancel service, AT&T might win public praise, but it also risks losing customers to competitors. Yet the shift in strategy reflects AT&T's long-term view that its new policies will win over consumers.
"We think it's going to be a net positive," Siegel said.
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