AT&T's Hundred-Million-Dollar Kiss-Off for Verizon Switchers

At long last, Apple has ended AT&T's exclusive right to the iPhone--but look on the bright side, AT&T. While many are harping on the millions of customers you're likely to lose thanks to Verizon's access to the device, we're firm believes that the glass is half-full. So here's some positive news to cheer you up, which most have neglected: You're set to earn hundreds of millions of dollars in cancellation fees.

According to a report from research firm Hudson Square, AT&T could lose as many as 4 million iPhone customers in 2011. In June, AT&T raised its early-termination fee from $175 to $325, with the cost decreasing $10 every month on contract. Taking a very safe, lowball average of these fees--between $100 to $125, says Hudson Square analyst Todd Rethemeier--AT&T would earn some $400 million from contract cancellations alone this year. 

Yet that number may be high--or possibly even too low. AT&T has said that about 80% of its customers are on family plans, which some say might deter customers from canceling. But Rethemeier has a different perspective.

"The family plan is a double-edged sword," Rethemeier tells Fast Company. "It might be that only one out of four of those people decides to switch, but if you have an iPhone user who is dead set on switching, they may be taking three or four lines with them."

Rethemeier says it's reasonable to assume AT&T will earn at least several hundred million dollars in termination fees, an estimate he agreed was a very low ballpark figure. Even assuming 80% of the 4 million customers pegged to cancel are on family plans, that would mean, at the lowest end of the spectrum, AT&T would earn more than $300 million in fees; and on the higher end, fees would exceed the half-billion dollar mark.

Requests to AT&T for comment were not immediately returned.

"Another way to think about it is that many of these customers are $90, probably $95 per month customers," Rethemeier says. "That termination fee is worth probably one, two, maybe three months of revenue for AT&T."

Of course, losing millions of customers isn't actually good news for AT&T, regardless of how many millions of dollars it will likely earn back in cancellation fees.

"It's a business you can be in for a very brief amount of time," Rethemeier chuckles.

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6 Comments

  • All The Worlds A Stage

    Nice.. Raised their early termination fee from $175.00 to $325.

    So why are people not rioting outside of AT&T pissed off about having to pay a fee to stop being the customer of a company. Its the only market in the world where you can lock a person into a contract.. Never be obligated to even provide the services and still feel the "right" to hold the customer hostage when you fail to provide products or services as good or better than your competition at a reasonable price..

    So much for "Free Market" huh? Mama Bell and all of her bastard wireless corps need kicked in the mouth and litigaged against the wall.. Consumer Fraud.

  • Piablo

    It's not AT&T or Verizon that "suck", it's the consumers. Apparently AT&T isn't too terrible as their subscribers for all intents and purposes equal the numbers Verizon has. If service from either provider is truly that bad, then why aren't subscribers voting with their pocketbooks? The truth is that service is actually pretty darn good and people just like to bitch, or consumers are just too dumb to get out of their own way.

  • hemidude

    I gotta say as a former iPhone user (3 generations worth) and a current Sprint/EVO user, I pity those still stuck on Apple as a phone provider. Their "phone" is average at best (sound quality), the technology that Verizon will have is second rate and already a year behind their competition, so anyone dumb enough to get locked into a 2 year contract on 3g tech will be screwed as 4g becomes the standard, and Steve J just gets richer and richer on mediocre technology.

    Don't misunderstand, I love the interface, but as a phone, the EVO kills the iPhone, and Sprint service is 100x more reliable than at&t in my city.

  • Doug Chasick

    For those of us on ATT, another possible benefit - better access when all these people go to Verizon!

  • Louann Oravec

    We have been loyal Verizon customers for over 15 years. We also had AT & T home phone service, and based on that I would NEVER have considered them for wireless. We now have Cavalier telephone/ internet and love them.
    Hold out; most plans are only for two years. Why should you give them extra money, for lousy service? Pay the least amount, and bail in two years