NEW YORK -- AT&T Inc. is raising the fees it charges buyers of the iPhone and other smart phones if they break their two-year contracts, while lowering them for "dumb" phones to better align the fees with their real costs.
Starting June 1, smart-phone buyers will have to pay $325 for breaking their contract, up from $175. For buyers of regular phones, the fee is being decreased by $25 to $150.
The early termination fee goes down for every month customers stay in their contract -- by $10 for smart phones and $4 for regular phones. So if a smart-phone contract is broken after two months, the termination fee is reduced by $20 to $305.
The changes apply only to new contracts and renewals.
Dallas-based AT&T charges customers $199 for the latest model of the iPhone, but pays Apple Inc. far more than that. AT&T makes the subsidy back through the customer's service fees over the two-year contract period. AT&T likely loses money for every customer that breaks a contract and pays a $175 termination fee, but may break even with the new fee.
Meanwhile, simpler phones may cost AT&T only $125 to buy, meaning that a $175 termination fee is excessive.
Following the same logic, Verizon Wireless doubled its smart-phone termination fees in November from $175 to $350.
Sprint Nextel Corp. and T-Mobile USA still charge the same termination fees for all types of phones: $200. All three also pro-rate the fees for customers who leave later in their contracts.
The Federal Communications Commission has questioned Verizon Wireless about the higher termination fees for smart-phone users, but hasn't taken any action.