Anatomy of a Ripoff: Cell Phone Activation and Upgrade Fees

by Michael on Oct 28, 2013 · 6 comments

Image of Smartphone With Money

Today, I wanted to share with you a recent experience related to our cell phone plan.

A couple months ago, we added a new line of service to our family plan for our son. Instead of buying a new (subsidized) phone, we used an old iPhone 3Gs that we had laying around.

The main reason for this is that my wife and I typically hand down our phones when upgrading, but neither of us was interested in an upgrade — especially not with the new iPhone release just around the corner.

While at the AT&T store, I confirmed with sales rep that activating the old phone wouldn’t have any impact on our ability to pick up a (subsidized) new phone on his line of service in the future.

“No, you can just come back in whenever you want to get the new phone. We’ll just need you to sign a two-year contract at that point, but otherwise it’s the same as getting the phone right now,” was her reply.

Great. We were ready to go. I activated the old phone as a new line of service, got hit with an annoying $36 activation fee that’s standard for all new lines of service, and went on my merry way.

Double (fee) whammy

Fast forward a couple of months. The new iPhone 5S had just been released and the backlight on that old iPhone 3Gs had stopped working. It was thus time to go shopping for some new hardware.

I headed back to the store to back up a shiny new iPhone. The plan, as always, was to associate the newest phone with mom or dad’s phone number and then trickle down our older handsets to the kids.

Note: Yes, you can swap handsets around without any trouble — at least with AT&T. As long as one of your lines is eligible for a subsidized phone, you can renew the contract on that line but assign the phone to any line you wish.

All was going well until the guy came out and told me that the new phone would be subject to a $36 “upgrade” fee. This was true even though I should have gotten a new phone with no additional fees at the original activation of service

While I’m not a fan of activation and upgrade fees in the first place (more on that below) I probably wouldn’t have balked if they weren’t trying to double dip on this one line. What should have been $36 total (confirmed with the rep at the time of initial activation) was now $72. Ummm, no thanks.

Long story short, the sales rep said there was nothing he could do to waive the fee. I asked him to credit our account to offset the fee and he couldn’t do that, either. I asked to speak to his manager and got the same answers.

Instead of just rolling over and paying the fee, I decided to call AT&T and press them on the issue. Were they really willing to let this fee stand in the way of an iPhone sale and the signing of a new, two-year contract?

After a short wait, I got a phone rep on the line. I calmly explained the situation, and minutes later he had not only credited our account $36 to offset the “upgrade” fee, but given us another $18 credit for our trouble.

This is just another example that it pays to stand up for yourself and ask to have fees removed. I spent an extra 5-10 minutes on the phone before completing the transaction and saved $54 — not too shabby.

The phone rep even texted and e-mailed me confirmation of the credit while I stood there in the store. Secure in the knowledge that they were no longer double dipping, I completed the transaction.

On activation and upgrade fees

As for activation and upgrade fees in general, you might be wondering why cell phone providers charge these. Well, I’m pretty sure the answer is nothing more than “because they can.” Frustrating but true.

Much like airline baggage fees, upcharges for better seats, and many other customer service fees, these fees are essentially an invisible profit center for the company above and beyond the stated price. Sure, without these fees you’d like face a higher “regular” price, but at least everything would be out in the open.

Note: To be honest, activation/upgrade fees are more maddening than many other “add-on” fees in that there’s no way of reasonably avoiding them. With airlines, at least you can carry on your bags or sit in a crappy seat.

As far as an official answer goes, I asked about the justification for their upgrade fees during an online chat session (on an unrelated transaction) awhile back. Here’s the answer that I received from the AT&T rep:

“The upgrade fee is to allow us to assist customers with recommending new equipment, answer questions around special offers and discounts, providing assistance with the upgrade process if needed, and ongoing support. These specialized processes help us to ensure you are satisfied with your new equipment and are ready to use it the day you receive it. The upgrade fee allows us to defray some of these additional service costs.”

In other words, you’re effectively paying an extra fee for the right to have them sell you something. You have to admit, that’s a pretty sweet deal — if you’re the seller. For the buyer? Not so much.

Yes, I fully understand the economics of cell phone subsidies. The carrier is taking a loss when they sell a subsidized handset — likely hundreds of dollars per device with a new iPhone. So they need to make that money up somewhere, right?

Well, don’t don’t forget that they’re locking you into two-year contract, during which time they’ll charge you upwards of $100/month for a single line of service.

So really, that $36 activation (or upgrade) fee is icing on the cake. Instead of being honest and rolling it into the advertised price, they’re hiding it as a fee that shows up on your next monthly bill.

All the major carriers charge these sorts of fees, so I’m not pointing my finger solely at AT&T. But that doesn’t make them any more palatable in my book.

1 Money Beagle October 28, 2013 at 10:50 am

We had all three lines switch to new iPhones on our account, and Sprint tried to charge us the $36 fee (what’s up with that number) on all the lines. It took me getting assigned to a customer service rep to get it waived, but it sounds like it’ll be harder and harder to get this fee waived. Especially if all the carriers start playing hardball, they’ll know that you don’t really have the leverage that you used to when you could threaten to switch carriers.

2 Michael October 28, 2013 at 11:29 am

Yeah, you can threaten to switch, but if they’re all playing by the same rules, then you can’t avoid these fees by doing so. I’m sure they realize this.

For what it’s worth, Verizon didn’t charge an upgrade fee until relatively recently. But since the others were all charging it, why not? For better or worse, people seem to make decisions on other factors (like advertised prices vs. the true cost) so I doubt they lost much business.

As for AT&T, their activation/upgrade fee was “only” $18 until early 2012, when they doubled it to the current $36.

3 Adam October 28, 2013 at 1:08 pm

This was one of many reasons that I switched to a prepaid plan for my iPhone back in 2012. I used Straight Talk for a while, at $45/month for unlimited voice, text, and 2.5 GB data (before throttling). This past month, I switched to T-Mobile’s $30/month prepaid plan which gives me unlimited text, 5 GB data (before throttling), and 100 minutes voice. Since I don’t use many voice minutes (and am happy using FaceTime Audio or Skype) this is a great option for me. No activation fees for either of them, although I did have to buy a SIM card ($14.95 for Straight Talk, $0.99 for T-Mobile, if you wait for one of their occasional sales).

4 Michael October 28, 2013 at 1:18 pm

Yeah, that T-Mobile plan is a great deal. Makes the standard (postpaid/subscription) plans from other carriers look criminal. Sadly, we don’t have T-Mobile coverage at our house. But perhaps they have a microcell that would work to transmit calls over our broadband connection? Will have to check.

5 SuburbanFinance October 28, 2013 at 10:11 pm

Activation fees are a ridiculous and unnecessary cost. I’ve never gotten hit with an upgrade fee, though.

6 thepotatohead October 29, 2013 at 10:45 pm

I remember how pissed I was when Comcast cable charged me $35 to “turn on my cable” which involved the tech looking at my outside box, determining I indeed had a splitter which I said I had, and going on his merry way. Sadly my repeat attempts at getting it waived did not work. I no longer have Comcast Cable, but am still stuck with them for internet…the battle rages on lol

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