ATandT Will Raise Termination Fees for Smartphones

AT&T will raise the fee for smartphone users who attempt to break their two-year contracts from $175 to $325, starting June 1. At the same time, termination fees for users of regular smartphones will decline slightly, from $175 to $150. The new fees will apply to new contracts. The move comes as Apple, whose iPhone remains the most popular smartphone on AT&T's network by mind share and revenue, reportedly prepares a next-generation smartphone to go along with its upcoming iPhone OS 4. In addition, AT&T plans on carrying a number of smartphones running Google Android and Windows Phone 7.

AT&T plans on raising the fee for smartphone users who break their two-year contracts, from $175 to $325, starting June 1. That fee will gradually shrink over the course of the user's contract, by $10 per month, and apply to new contracts.

At the same time, the termination fee for purchasers of regular cell phones will actually decline, from $175 to $150, with a $4 reduction for every successive month the user stays under contract.

A similar move by rival Verizon in late 2009 attracted protests from users. Nonetheless, an AT&T spokesperson told The Wall Street Journal May 21 that the raising of fees was a "fair approach."

The news comes as Apple, whose iPhone is AT&T's most successful smartphone, prepares for yet another summer of smartphone-related releases. In addition to its upcoming iPhone OS 4, which comes with new features such as multitasking, the company is also rumored to have a next-generation iPhone in the works; over the past few weeks, two devices purported to be prototypes leaked into the wild, with one of them dissected by tech blog Gizmodo.

The iPhone is something of a double-edged sword for AT&T. Although the device has boosted the carrier's popularity and helped drive the carrier's overall revenues, many of its users have almost made a sport of complaining about the network's supposed inability to handle their thirst for bandwidth. AT&T has countered these complaints by insisting that it has been heavily investing in its network infrastructure.

In cities with large numbers of iPhone users, such as San Francisco and New York, AT&T has been reportedly at work on improving its 3G Voice Composite Quality Index, claiming that it improved that metric by 21 percent in San Francisco for the fourth quarter of 2009. In addition, the carrier claims an expansion of its 3G coverage by 4,100 sites, or 360 cities.

While the iPhone seizes most of its smartphone spotlight, AT&T has other smartphones on offer, including the Palm Pre Plus and the Pixi Plus. The latter will make its AT&T debut June 6. Additionally, the carrier introduced the Motorola Backflip, a device running Google Android 1.5, in March; five Android phones are eventually planned for rollout. AT&T executives have also indicated that two smartphones running the Windows Phone 7 operating system will make their debut on the network at an unannounced date.

In the face of the increased demands on bandwidth, AT&T is apparently considering a tiered pricing system that forces more data-intensive users to pay more. "For the industry, we'll progressively move toward more of what I call variable pricing so the heavy consumers will pay more than the lower consumers," AT&T CEO and President Randall Stephenson told the audience during March's Morgan Stanley Technology, Media & Telecom Conference.