Moody’s questions the timing of the wireless company’s move but sees it as credit positive in the short-term:
Late last week, AT&T (NYSE:T) said it will raise early-termination fees on its smartphones (including the iPhone) to $325 from $175, effective 1 June. The move is credit positive in the near term as the company will likely reduce churn (customers that disconnect its service) as the cost of exiting the contracts early will climb by $150.
But the timing of AT&T’s move is strangely awkward; it comes six months after Verizon Wireless (VZ) raised its early termination fees and it falls on the heels of an FCC report that positions the agency to say that the wireless market in U.S. is not as competitive now as it was in the past.
Although recently the FCC said that it is not interested in regulating pricing or implementing net neutrality on wireless networks, and earlier in the year said it would seek to free up more spectrum for the carriers’ data needs, the agency has consistently criticized early-termination fees and handset exclusivity deals.
That’s why AT&T’s timing is particularly odd, as it’s almost certain to poke a stick in the beehive of a hot-topic issue for the FCC.
We believe AT&T is willing to live with the regulatory backlash to protect its cost structure, especially if there is a growing possibility that it will lose iPhone exclusivity sometime in 2011. Another possible motive for the fee hike is that the fourth-generation iPhone set for release in June or July will cost the company more than the current 3G model.
