“But why 61¢, why not $1 or $5 or $10? Because AT&T understands price elasticity of demand. When AT&T raises the price by 61¢, they know hardly anyone is going to bail on them, and so can impose this with impunity. $1 or $5 or $10 is just too much to swallow all at once, but give them time. For now, $500 – $600 Million will flow right to the bottom line. 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!”
I’m usually enraged with everyone that runs the show in the mobile consumer space.
Over the years, I’ve found (as well as you’ve found I’m sure) that the major players do their level best to squeeze every copper penny out of the American consumer, trying to back up that squeeze by telling us about service enhancements and whatnot that come with that charge. What AT&T is now doing in that spirit doesn’t even come with a veiled attempt at justification. Soon all AT&T wireless customers will have an additional $0.61 tacked on to their monthly bill. Now sure that doesn’t sound like too much – I mean we’re only talking about an additional hit of $7.32 to your yearly mobile expense, but that adds up. Maybe it doesn’t add up to you personally, but add up that $7.62 per customer over their entire customer base and it adds up a little sweeter to them – to the tune of $500-600 billion added to AT&T’s yearly bottom line.
And why? According to analysts, because they can.
Now let’s take a look at the evil genius of it all.
1. AT&T has a clause in their contracts that if there’s a price increase outside the scope of the contract, the customer has an opportunity to get out of it without having to pay a termination fee. The fact that they call it an administrative fee means it’s not technically a rate increase, so that clause doesn’t apply. Take a look at section 1.3 if you’re interested in their terms of service and make note of administrative fees being explicitly excluded.
2. $0.61 isn’t enough to scare customers away – no one’s going to cancel their contract and pay a huge termination fee over $7.32. Now no one’s going to like it, but it’s jut not enough to quit. This is half a billion dollars pretty much for free as a gift to themselves from all of you. Joe Hoffman, principal analyst at ABI Research had the following to say:
Now an AT&T spokesperson says that this is pretty in line with what other carriers do or will charge, and I totally believe it.
It’s $0.61 now, but when is that line going to be $0.90? or $1? It’s going to creep over the years while our phone bills skyrocket, and the average consumer will barely notice. Not exactly much we can do about it, but you should all fully understand what the mobile industry sees us as:
Cash piñatas that always pay out.
Author and creator of Technical Fowl. IT/Tech hero. Jiu Jitsu brown belt. Enjoying the venn diagram intersection of tech, gaming, business, and politics.