The second-largest telecom carrier in the U.S. AT&T, Inc. (T) has included a new administrative fee of 61 cents in the monthly bills of its post-paid customers from May 2013. It is viewed as an attempt by the telecom giant to enhance its annualized revenues.
This below-the-line charge is applied for certain extra operational expenses such as interconnection, cell site rents and maintenance. AT&T expects this extra charge to bring in additional revenues of around $350 million in 2013 and another half a billion in 2014.
These fees generally appear at the bottom of the phone bill and mostly remain unnoticed by the customers. This allows the operators to claim lower-priced services. The new administrative expenses are one of such components that don’t affect the consumers much but adds to the carrier’s top line depending on its customer base.
Public interest group Free Press has criticized the company’s decision as this below-the-line fee is believed to be an attempt by the company to increase its prices. Public knowledge, another defender of consumer interest, has also said that insufficient competition in the telecom market and no regulatory hurdles on charging additional fees allow operators to impose such additional charges.
AT&T has argued that rival carriers have been practising this for long and customers were given 30 days prior notice about the increased fees. Notably, rival Verizon Communication Inc. (VZ) charges an administrative fee of 90 cents, while Sprint-Nextel Corp. (S) has been charging $1.50 per subscriber for the last 5 years. However, T-Mobile US Inc. (TMUS) does not charge any administrative fee.
In the recently concluded quarter, AT&T’s revenues of $31.4 billion failed to meet the Zacks Consensus Estimate. Although its Wireless segment reported 3.4% annualized growth based on higher adaptation of smartphones and lower churn, Wireline revenues dipped 1.8% annually.
We believe that this additional fee will be a revenue driver for AT&T and will allow the company to meet its 2013 revenue growth target of 2%. However, it remains to be seen how the company can compensate its revenue loss in the Wireline segment, by increasing the wireless service fees.
Currently, AT&T carries a Zacks Rank #3 (Hold).
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