The new "administrative fee" could be helping to pay for the Time Warner merger, analysts say.
AT&T’s wireless customers are expected to pay almost $1 billion in new fees every year to the company after it increased a monthly “administrative fee” this spring in a move that went largely unnoticed, according to an industry analyst.
The analyst, Walt Piecyk of BTIG, initially estimated that AT&T could pocket roughly $800 million more annually from the higher fee, before revising that figure upward to $970 million once he learned that the fee hike also will affect tablets and smartwatches on AT&T’s network, not just cellphones.
“Some people might not get hit till next cycle,” Piecyk said.
The higher fee reflects a 58 percent increase over its previous level of $1.26 per line. The fee is now more than three times what it was when AT&T first introduced it in 2013. It does not apply to prepaid customers but affects the vast majority of AT&T’s roughly 65 million postpaid subscribers, Piecyk said.
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“Presumably the Administrative Fee is another way to help AT&T fund its network build and Time Warner acquisition going forward,” wrote Piecyk in his note airing the discovery.
AT&T declined to say whether the fee would be allocated toward defraying its merger costs. The company said in a statement that the fee is a standard practice across the industry, and that it “helps cover costs we incur for items like cell site maintenance and interconnection between carriers.”
A page on AT&T’s website also says that the fee is “not limited” to covering cell site maintenance and interconnection.
Like the country’s other wireless carriers, AT&T is moving aggressively to build out a nationwide successor to its 4G LTE data network, an endeavor that is likely to cost billions. It is also spending $40 billion – and could receive more than $30 billion from the federal government – to construct a new wireless network for first-responders.
AT&T is changing rapidly in other ways. The company this month closed its landmark $85 billion merger with Time Warner, becoming an entertainment and media giant overnight. It is moving quickly to capitalize on the acquisition, renaming Time Warner as WarnerMedia and launching a new streaming video service, WatchTV, that contains some of the programming it now owns. It also acquired AppNexus, a digital advertising firm that could help AT&T monetize WarnerMedia’s video content.
It is unclear whether price hikes could be coming to other AT&T services. Arguing for the deal against the Justice Department in court this year, attorneys for the company claimed that prices for AT&T’s pay-TV service, DirecTV, were likely to go down. But critics of the deal said that the Time Warner merger was likely to increase prices for TV viewers indirectly nationwide.