US subscribers to AT&T's mobile network are getting an extra 61¢ "Mobility Administrative Fee" on their bills beginning in May.
That's not a lot of money for individual users, but it adds up to over $40m a month in additional revenue for AT&T – around half a billion each year. The company has reportedly said its administrative charges are lower than rivals Verizon and Sprint, and that they will cover maintenance and cell-tower rents, although we're still waiting for details on that.
The fee comes alongside AT&T's monthly "regulatory cost recovery charge", which covers the cost of complying with government regulations, and adds around 50 cents a month to customers' bills. Verizon charges 90 cents for this and Sprint 40 cents, while T-Mobile charges $1.61 but doesn't include other administrative charges.
"Why would AT&T do this? Because they can," wrote Joe Hoffman, principal analyst at ABI Research. "Now that AT&T is comfortable with their shiny new pricing tools and flexibility that comes with them, looks like someone in the Executive MBA program has discovered Price Elasticity of Demand."
Hoffman predicts the plan will be a success, since subscribers are unlikely to dump AT&T over a charge that's so small, even if the profits it reaps will be huge for the company. Adding this in as an additional charge also makes it less likely to be noticed when people pay their bills.
"For now, $500 - $600 Million will flow right to the bottom line," Hoffman wrote. "Brilliant! No fancy software tools, no focus groups, no high priced engineers and programmers, and no iPhone subsidies. Just a raw, brute force price increase. In six to 9 months, add another fee, then rinse and repeat a few more time. Marketing beats engineering every time!"
AT&T has learned from the experience of Verizon, which in 2011 slapped a $2 "convenience fee" (yes, it actually called it that) on customers who paid their bills online or via telephone. After massive public outcry, the company dropped the charge within 24 hours – it seems it's easier to get people's backs up if you break that dollar barrier. ®