updated 03:40 pm EDT, Fri May 21, 2010
ATT follows Verizon in using ETF to keep customers
AT&T is quietly hiking early termination fees for smartphones to keep customers onboard. As of June 1st, new or renewing customers using a BlackBerry, iPhone or other high-end device will pay as much $325 to leave early, or almost twice the $175 it charges today. The fee is prorated and will drop by $10 for every month the subscription continues but could still leave customers paying $95 to leave even with a month left in the contract.
ETFs for regular phones are simultaneously dropping and falling by $25 to $150, although the prorating only sheds $4 from the cancellation fee for every passing month.
The move follows a decision by Verizon in November to double its own ETF to $350 for smartphones like the Motorola Droid and may represent a widening trend for the larger US cellular industry. It's unclear why AT&T would try the move now as Verizon is already under close scrutiny by the FCC over the possibly anti-competitive nature of the rate hike. Verizon has insisted the increase was only meant to recoup the cost of expensive smartphones, but the FCC and critics have speculated that it may simply be to "trap" customers by rendering it too expensive to leave early if the device or the company prove less than ideal.
The timing also follows just as rumors of a Verizon iPhone in the fall have increased in frequency and as AT&T's own dialog on the iPhone has changed. While he never directly alluded to US exclusivity coming to an end, AT&T wireless chief Ralph de la Vega just this week began to address a possible non-exclusive iPhone in practical terms, noting that business and family plans would keep customers onboard. A high ETF would similarly keep newer iPhone customers with AT&T by making it prohibitively expensive to leave.
AT&T has defended the decision by saying that customers can always get phones at no-contract pricing, but the iPhone and many other phones are still carrier-locked at that stage and would prevent customers from leaving without either a legal unlock code or a gray-area hack.