Is AT&T's 'admin fee' just a sneaky way of raising rates?

In this edition of Ask Maggie, CNET's Marguerite Reardon discusses AT&T's new 61 cent wireless fee and explains how carriers can raise prices even when you're under contract.

If you thought airlines and hotels were sneaky and stingy about the fees they impose on their customers, just take a close look at your next wireless bill.

What you'll find in addition to the taxes and fees the government requires you pay on top of your cell phone bill are charges that your wireless operator has also tacked onto the bottom of the bill. All four of the major U.S. operators now add some sort of "below the line" charge to their customers' phone bills.

These fees are not considered part of the service fee that wireless customers pay each month, but are instead listed with local and state taxes at the bottom of the bill. The fees are not required by the government. And some may argue that they are completely unnecessary.

Mobile operators say the fees are used to cover additional operational costs, such as expenses related to running their businesses. But they are adamant that the fees are not rate increases. While companies in other industries might absorb these types of costs or charge higher rates to their customers to make up the difference, wireless operators have stealthily disguised these price hikes by calling them something else.

In this edition of Ask Maggie, I look at AT&T's latest attempt to add such a new charge on its bills. And I explain whether this new fee could be enough to let customers terminate their contracts without paying a penalty.

I also explain to another reader why wireless contracts actually do very little to protect consumers, especially when it comes to rate increases. And I explain why consumers are likely no more vulnerable to rate hikes under T-Mobile's new no-contract plans than they would be if they stuck with a traditional two-year contract service.

Can I get out of my ETF?

Dear Maggie,
I have been an AT&T customer for many years. I recently heard about the new "administrative fee" that AT&T is charging its customers. I know it's only a small amount, but it still burns me up. I've had it up to here with AT&T! I've read on different blogs that can get out of my contract now because of the change. Is this true? Can you tell me how I'd go about doing that?

Thanks,
Benny

Dear Benny,
I understand your frustration. As a consumer, I'm frustrated, too.

CNET/Marguerite Reardon

AT&T started charging an extra 61 cents per line on May 1 . The company calls this fee a "Mobility Administrative Fee," and it's careful not to include it in the same section of the bill as the standard service fee. As a result, it lists the charge "below the line" with other taxes and surcharges at the bottom of the customer's phone bill.

As you point out 61 cent probably won't break the bank in terms of your monthly budget, but the fee, which is charged to every consumer wireless line, including each line on a family plan, adds up to big bucks for AT&T. The Wall Street Journal, which first reported the news of the new fee, estimates that AT&T could generate $350 million in extra revenue this year and $518 million next year.

AT&T said in a statement that the monthly fee has been instituted to "help cover certain expenses, such as interconnection and cell site rents and maintenance."

The company went on to justify the new fee by stating that everyone else is doing it.

"For some time some of our competitors have been assessing this type of charge... Until now, AT&T has not charged such a fee, but it will help defray a small portion of certain expenses and we are using a name for the fee that has become common in the industry."

AT&T is correct about the fact that its competitors have long instituted such charges.

Verizon began charging its "administrative fee" in 2005. A spokeswoman told me that the fee goes "up or down depending on costs." But to be honest, I have never seen a carrier's fees actually go down. Today, Verizon charges 90 cents for its fee.

Sprint began charging its fee in January 2008. And in 2011, the company increased it from 99 cents to its current amount of $1.50.

A spokeswoman explained why Sprint is compelled to add this charge: "The administrative charge is assessed by Sprint to help defray various costs imposed on Sprint by other telecommunications carriers, including, but not limited to, charges imposed by local telephone companies for delivery of calls from our customers to their landline customers and for certain network facilities and services we must purchase from them."

T-Mobile calls its extra fee something different. Instead of an "administrative fee" it charges a "Regulatory Programs Fee," which it explains on its Web site is not "a tax or government-required charge; however, T-Mobile collects this fee to help recover the costs of complying with government mandates."

The $1.61 per month fee on individual, business, and government accounts is to help recover costs associated with providing programs such as E-911, number pooling, and number portability.

I understand that these fees are pocket change for most consumers. And they are a drop in the bucket considering that most subscribers pay at least $60 or $70 per month for service. But remember that these carrier fees are on top of the other fees and taxes that the government requires on phone bills.

And those taxes add up each month. In fact, according to the CTIA Wireless Association, which lobbies Congress on behalf of wireless operators, on average consumers are paying a tax rate of 16.3 percent on top of their wireless bills. This is more than double the rate paid for general goods and services.

The industry finds these additional taxes to be so egregious, they've been lobbying Congress to pass legislation called the Wireless Tax Fairness Act (WTFA), which "prohibits states or local governments from imposing any new discriminatory tax on mobile services, mobile service providers, or mobile service property (i.e., cell phones) for five years."

Interestingly, wireless carriers don't seem to have a problem with the fact that they are also adding their own taxes to their customers' phone bills. This hypocrisy bothers me, and it should bother you, too.

Now, to answer your question, can you get out of your contract with AT&T and not pay an early termination fee? As you have indicated some blogs and online articles have suggested this is the case. And based on the way the company's policy is stated, I would agree with them. But it might not be that simple.

First let's look at AT&T's wireless service agreement:

1.3 Can AT&T Change My Terms And Rates?

We may change any terms, conditions, rates, fees, expenses, or charges regarding your Services at any time. We will provide you with notice of material changes (other than changes to governmental fees, proportional charges for governmental mandates, roaming rates or administrative charges) either in your monthly bill or separately. You understand and agree that State and Federal Universal Service Fees and other governmentally imposed fees, whether or not assessed directly upon you, may be increased based upon the government's or our calculations.

IF WE INCREASE THE PRICE OF ANY OF THE SERVICES TO WHICH YOU SUBSCRIBE, BEYOND THE LIMITS SET FORTH IN YOUR CUSTOMER SERVICE SUMMARY, OR IF WE MATERIALLY DECREASE THE GEOGRAPHICAL AREA IN WHICH YOUR AIRTIME RATE APPLIES (OTHER THAN A TEMPORARY DECREASE FOR REPAIRS OR MAINTENANCE), WE'LL DISCLOSE THE CHANGE AT LEAST ONE BILLING CYCLE IN ADVANCE (EITHER THROUGH A NOTICE WITH YOUR BILL, A TEXT MESSAGE TO YOUR DEVICE, OR OTHERWISE), AND YOU MAY TERMINATE THIS AGREEMENT WITHOUT PAYING AN EARLY TERMINATION FEE OR RETURNING OR PAYING FOR ANY PROMOTIONAL ITEMS, PROVIDED YOUR NOTICE OF TERMINATION IS DELIVERED TO US WITHIN THIRTY (30) DAYS AFTER THE FIRST BILL REFLECTING THE CHANGE.

If you lose your eligibility for a particular rate plan, we may change your rate plan to one for which you qualify.

I talked to Michael Aschenbrener with Aschenbrener Law in Chicago, an attorney who specializes in consumer rights , and he says that customers have a valid argument against AT&T for charging this fee. But he warns that fighting AT&T won't be easy.

"I think people can and should argue against this fee," he said. "Whether they will be successful is a different matter. AT&T will certainly respond that it is not a change to the cost of the service, but AT&T's actions indicate otherwise."

Indeed that is exactly what AT&T has said.

"This is not a rate increase, and customers won't be able to terminate their contract without penalty, that is, paying an early termination fee," said Mark Siegel a spokesman for AT&T when asked if consumers could terminate their service as a result of the new fee.

Still, Aschenbrener believes that customers could have a case given that in AT&T's wireless service agreement it indicates that it will notify customers of any increase in the price of service in writing at least one month in advance, giving customers a chance to cancel service without incurring an ETF. It's implied in this policy that AT&T only notifies customers of changes it believes are significant and "material."

AT&T has said it informed customers 30 days prior to the fee going into effect, which Aschenbrener argues means that it was following its own procedure of notifying customers of a change in pricing at least one month in advance.

"In other words, AT&T is acting as if this is an increase to the cost of service," Aschenbrener said. "As a result, customers should be able to cancel service without an ETF."

But he also noted that even though customers may have a case to argue, they have few avenues for fighting it. For example, since the landmark U.S. Supreme Court case of AT&T Mobility v. Concepcion , consumers no longer can sue AT&T or any other major wireless carrier in a class action lawsuit.

That said, consumers can take action individually. You could take AT&T to arbitration, or you could sue the company in small claims court. But it's likely to cost you a lot more than the 61 cents per month fee to pursue this option. And it's doubtful that a handful of individual cases will force AT&T to change its policies. One AT&T customer, Matthew Spaccarelli, has sued AT&T over the terms of his service regarding throttling his unlimited data service . He won his suit against AT&T, but the company has not altered its policy and still slows service for unlimited data customers it claims use too much data.

But even if you win your case in arbitration or small claims court, you'd still likely pay a similar fee on another carrier's network, since the other three major wireless operators also charge these types of fees. You could sign-up for a prepaid carrier that charges a flat rate and does not add additional fees and taxes to its price. That would likely be your only option.

Aschenbrener recommends that consumers upset by the larger carriers' practices complain to the Federal Communications Commission, Federal Trade Commission, and their senators and U.S. representatives. He believes that AT&T and other carriers are breaking the law with deceptive marketing and advertising.

"AT&T is simply passing on the cost of doing business to its customers beyond the agreed-upon service price," he said. "If AT&T really needs to charge its customers another 61 cent per month, then it should increase the advertised rate plan costs by 61 cents, not hide the charge below the line and advertise a lower price."

I agree with Aschenbrener. And it's likely that complaining to lawmakers and other federal agencies that can put a stop to these fees is a more useful endeavor than trying to sue AT&T.

The FTC may be a good place to start. It is already investigating hotel operators that advertise a lower rate online and then force customers to pay mandatory resort fees once they check-in. In November, the FTC warned 22 hotel operators "that their online reservation sites may violate the law by providing a deceptively low estimate of what consumers can expect to pay for their hotel rooms."

I think the wireless operators' behavior is very similar to this practice. They advertise one low fee and then add other mandatory fees on top of the rates they offer customers. In the end, a consumer is paying more than he had anticipated when he signed his contract. What's more in the case of a carrier such as AT&T, this fee is being added well after customers even signed their contracts.

With enough outraged consumers complaining about the activity, perhaps the FTC or some other government agency or even Congress, will take action to make sure the law is followed and wireless operators no longer are allowed to advertise one rate and increase it with additional fees.

Good luck in fighting the good fight!

Should I worry about T-Mobile raising rates on the new no-contract plans?

Dear Maggie,
I am a current AT&T user who is thinking about switching to T-Mobile for the cheaper rate. My question is that with no contracts, does that mean my rate can be raised whenever T-Mobile decides to raise it or will I be locked into a rate?

That was one good thing about contracts, they know you will be a customer for two years, and you know they won't raise your rate. I understand that I can leave at any time, only after I pay off a $600 phone. So if they raise my rate, I am stuck paying the higher rate until I can pay off my phone in full to T-Mobile.

Companies are in business to make money, so I'm trying to find the catch. I have been looking online to see if anyone else is talking about this, but can't find anything. I tried reading some fine print but it just confuses me. Any information would be helpful. I look forward to hearing from you.

Thanks,
Carrie

Dear Carrie,
As I noted in the answer above, carriers, such as AT&T, can change your rate plan at any time, regardless of whether you have a contract. In its terms of service, AT&T has stated that If you have a contract, it will inform you in writing within 30 days in advance of any change. At that point you have the option to cancel your service without having to pay an early termination fee.

But as you've just seen from the above controversy, AT&T has ways to get around its own policy. If the company simply calls the rate hike something else, it assumes it doesn't have to allow you to cancel your contract.

My point is that even with a contract, AT&T can and has increased prices on its service. And it has not allowed customers to cancel service as it has indicated it would in its own policy. AT&T is not the only wireless carrier that operates its business this way.

And if one wants to raise prices, it will find a way to do it, regardless of whether you have a contract. The contracts that carriers force consumers sign benefits them much more than it protects consumers. It's extremely one-sided.

Still, you bring up an interesting point in your question. It is possible that T-Mobile could raise prices on its new no-contract plans , just as I explained AT&T or any other provider offering a contracted service can do. The difference here is that T-Mobile doesn't offer a contract or an early termination fee. But if someone has financed their device through T-Mobile, in some ways this may act as an early termination fee, since the customer who financed the device would still be responsible for paying it off.

While this might cause you some concern, here's why I don't think you should worry too much about it. T-Mobile has introduced this new plan and is offering lower prices because it's in last place compared to the three other major U.S. carriers . The company is a challenger to the bigger operators, and it's whole schtick is that it can offer lower prices and better value to consumers.

With this in mind, it simply doesn't make sense from a marketing perspective to suddenly increase its prices. Remember that customers won't have contracts binding them to the service. And many people will be bringing existing devices to the network. If T-Mobile does something, like increase prices, that upsets subscribers, they will just walk. And that's not what the company wants to happen.

In short, I doubt very seriously that T-Mobile would make significant changes to its plan and risk angering its customers. So if I were you, I wouldn't worry too much about that. Instead, I would focus my attention on whether I could get a better deal from T-Mobile as compared to a competitor. And I'd make sure I could get adequate service from T-Mobile before I'd make the switch.

Good luck!

Ask Maggie is an advice column that answers readers' wireless and broadband questions. The column now appears twice a week on CNET offering readers a double dosage of Ask Maggie's advice. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.

 

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