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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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