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Why Do Cell Phone Companies Charge Activation Fees?

Written by Nickel - 26 Comments

Why Do Cell Phone Companies Charge Activation Fees?

Pardon the rant, but… With the recent news that AT&T is doubling their wireless activation fee from $18 to $36, I just have to ask: Why do cell phone companies charge activation/upgrade fees?

The simple answer, I guess, is “because they can.” AT&T’s excuse is that they’re just covering their costs. But why not just charge more for the hardware?

Presumably they’re trying to stay ahead in a race to the bottom. Just like airlines who charge extra for checked bags, they want to keep their advertised prices as low as possible while still padding their bottom line.

Perhaps the most frustrating thing about these fees is that they typically apply to both new activations and upgrades. In other words, every time you go in for a new phone, you’ll get smacked with the fee.

Yes, I understand the economics. Wireless providers are eating part of the cost of the hardware to get you to sign up. That $200 iPhone you just bought? They probably lost around $400 when the moment they sold it to you.

But don’t feel too bad for them… That $400 investment gives them the right to charge you upwards of $100/month for the next 24 months. That $36 upgrade fee? Icing on the cake.

To be fair, AT&T isn’t alone in charging these fees.

Sprint also charges a $36 upgrade fee, and T-Mobile charges $18 for upgrades. Verizon, on the other hand, comes out on top. Yes, they charge $35 to activate a new line of service, but there’s no upgrade fee.

Unfortunately, these sorts of fees have become a part of the wireless landscape, and I suspect it’s only a matter of time until Verizon caves and starts applying their fee to both activations and upgrades.

While you can ask to have these fees waived — sometimes that works — you’ll also need to keep them in mind when comparison shopping between carriers.

Published on February 13th, 2012
Modified on February 20th, 2012 - 26 Comments
Filed under: Customer Service

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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26 Responses to “Why Do Cell Phone Companies Charge Activation Fees?”

  1. 1
    BG Says:

    I don’t pay these types of fees. Last year I activated three lines and I balked at the activation fees. The At&t sales girl had no problem waiving them. All you have to do is ask (demand), stand your ground, and be prepared to walk away from the deal if you dont get what you want.

  2. 2
    PFM Says:

    I wince ever time I look at my cell phone bill, I haven’t upgraded phones in 3 years and am considering just switching to a pay-as-you-go plan like a Tracfone or something similar, it’s on my “reduce recurring bills” to-do list

  3. 3
    Jonathan Says:

    PFM, ATT GoPhones for $2.99 at Best Buy right now! :)

  4. 4
    Practical Parsimony Says:

    I am considering switching from ATT to Sprint or Boost. By the way, the “unlimited” thing is not true except at Sprint and Boost. The fine print on the other company brochures takes back the “unlimited” promise. Looks for it.

  5. 5
    Practical Parsimony Says:

    I am considering switching from ATT to Sprint or Boost. By the way, the \\\”unlimited\\\” thing is not true except at Sprint and Boost. The fine print on the other company brochures takes back the \\\”unlimited\\\” promise. Looks for it.

  6. 6
    Kevin R. Says:

    Yes, the short answer is ‘because they can.’

    I’m guessing the activation concept originates from when Telecoms were regulated land line companies. Activation fees and change-in-service fees were just parts of the landscape. GTE (dating myself) would charge me whenever I changed anything ($10 in the 90’s) and it would still annoy me. Of course when these fees originated, an actual paid technician had to go to a physical location and do something — Where today, those are some pretty expensive keystrokes for electrons to go do something.

  7. 7
    Thad P @ thadthoughts.com Says:

    Why charge activation fees? Because they can’t charge early termination fees against everyone.

  8. 8
    Bob Says:

    Activation fees I remember acted as a barrier to me to jump to a new plan. Multiphone move adds up.

    I also noticed that ‘admin’ fees and other ‘fees’ that has my Verizon service slowly inching up from $130 to $137. Where did the $7 come from. It keeps climbing.

  9. 9
    Ashley Says:

    This is one of the many reasons we use the prepaid phones, or pay as you go or whatever they are. For $30/month, I get 1500 talk minutes or texts. My son has text-only for $15/month. My husband uses the *100 minutes and unlimited texts and web* plan for $30. At least we know what we’re getting and what we’re paying for and can get the package that fits us each best! I’m not sure why anyone signs up for a contract anymore!

  10. 10
    don Says:

    Sometimes is is worth it to buy the telephone full price and not have to be tied to a contract. Is also can work out costing less over 2-3 years with lower monthly bills (T-Mobile), that is until you buy an iphone.

  11. 11
    Tyler S. Says:

    Verizon might have a little bit lower activation fee, and none for upgrades, but they’re notorious for adding all kinds of little fees here and there in the monthly statements that people don’t pay attention to. Former Verizon Employees have told me this.

    I think the activation fee that most companies charge is exactly just because they can.

  12. 12
    bucky Says:

    Cell phone upgrade fees are one of my biggest peeves. I can understand if you’re doing an early upgrade (while under contract), or if you’re not signing up for a 2 year contract.

    But if you’ve already completed a contract and are signing up for another 2-year contract, why would they charge you another $36? Consumers just need to unite and complain about this, it’s not right.

  13. 13
    HomeBody Says:

    I just chatted with a Sprint rep about an activation fee of $36 for my wife’s new phone. I have 5 EVO’s on Sprint with 1500 shared minutes and unlimited everything else. She moved up to a new phone and they had the nerve to charge me $36 – my monthly bill is $270 already! I also got the protection plan thru Best Buy for $9.99/month instead of Sprints $8/month because Sprints sucks – anything happens to you phone and you get a rebuilt piece of junk for $100 co-pay. Best Buys plan gets you a NEW phone equal or better with no co-pay. Get your phones at Best Buy and complain to Sprint about the activation fee…

  14. 14
    Paula Says:

    Sorry Nickel, Just upgraded one our verizon lines; they have jumped into the upgrade fee pool with opening bid of $30.00

    I am sure once they realize this fee is lower then almost every other carrier they will raise their bid!

    they said it’s to cover the cost of the transferring your data, activating the new phone, putting on the case and screen protecters, I say it’s CRAP!

  15. 15
    Robert Jones Says:

    This article is complete garbage….

    Another Internet Blogger trying to make a dime on misleading the public. Where is the journalism? Hmmmm? Pardon me but I couldn’t help but notice this page is laden with affiliate advertising that will probably never leave my browser cache even if I dismantle and rebuild my entire computer.

    Major telecoms incur service costs just like any other business. The market demands the latest and greatest along with everything else. Like cars, telecom services do not have THAT much markup that most people think exists while most cost analysis assumes a loss and focuses on how to reduce that loss.

    Activation costs go to merchant fees for EID verification, credit checks and other forms of fraud prevention contracted by major vendors. People constantly cancel, default on accounts, or simply switch on a whim. This all costs.

    Do you think that power, electricity, fiber optic and copper cable and increased ownership of wave spectrum is free? If you want to check your Facebook while waiting for public transportation, you have to pay up. Mobile broadband demand has increased not more than %100 , %200 or even %500 but probably close to %100000 in the United States in the last 5 years. The smart phones of today, outclass the processing power of a 1999 Pentium III.

    And yes,cell phone companies charge for the subsidised phones that have to be built, packaged,shipped and stocked at a retail location with its own labour and energy bills.Upgrade fees also involve these same merchant costs as do returns, restocks and everything else.

    Epic Fail

  16. 16
    WAKE UP! Says:

    THANK YOU ROBERT JONES! I do not understand why consumers think the cell phone industry is “sticking it to them”- ALOT goes into getting you on facebook at your convenience..also cell phone providers do not MAKE those devices in the back of house… they BUY them from Apple.. Samsung.. ect- the companies are already taking a complete LOSS on the phone (600$ or more) by giving it to you at a subsidized price… paying the employee who makes sure you dont lose a thing..updating towers.. systems…software…I do not mind paying an extra $30 every TWO years for a device that replaces my phone..pager…calculator..GPS…planner…laptop…games…IN ONE and make it work good. Freaking consumer always wanting something for nothing. 10 years ago youd pay 600 for a bag phone and 50 bucks a month for 25 mins a month for JUST A PHONE! Gasp…

  17. 17
    Thom Says:

    The last two posters are either absolute tools or are paid shills for the cell phone companies. I also don’t pay activation fees, or any other kind of fee like it attached to a contract. They want me to sign that contract – I’m not going to pay them to sign a binding two-year commitment that requires me to hand over thousands of dollars.

    If you continue to have a problem with it, think about it this way: cell phone company wants to charge me a $36 activation fee? That’s fine, I charge a $36 “Cell Phone Company Research and Contract Signing Fee” that offsets it. We just end up getting their fee “waived” to make the paperwork cleaner.

    A contract is a two way street. They’re trying to get me to sign their contract. I’m under no obligation to do so and have every right to negotiate the terms.

  18. 18
    TFMeehan Says:

    Certainly their are hard costs to providing this service but even as the price per minute of call time was dropping they held the price of texts steady to the point that they were more expensive than calling minutes even though their actual cost was a fraction of voice. Only recently have they brought costs in line for texts but only if you pay for the unlimited package.

    They earn their critics the old fashioned way.

  19. 19
    Linda Says:

    I just went into a Verizon Wireless store. They now charge an activation fee of $30. They won’t sell me a cell phone sturdy enough to last 18 months, then they charge me a fee each time I need to replace the crap they sold me.

  20. 20
    Mavelton Says:

    Verizon said it’s because people leave early and it’s costing them money. I said I thought that’s why they had an early termination fee and he said yes but it still doesn’t cover the cost. I wanna know what company they’re all going to, and that’s the one I wanna go to.

  21. 21
    Jeff Thomas Says:

    As a new customer, I just bought an iPhone 5 and Note 2 from VZ. When I asked them to waive the activation fees ($70), they said they didn’t have the power to change the policy. I said thanks, but no thanks, I’ll buy from Costco (they rebate the fees). At that point they said they could add a one time hardware adjustment credit of $35 for each phone. So I still paid the fees, but they offset them with an instant price reduction on the hardware. Tell them you’ll buy from Costco, it works!

  22. 22
    Chuck Says:

    While I agree with “Robert Jones” about this site being nothing more than a medium for advertisements, I think he should pull his head out of his ass when it comes to the “costs” that carriers have.

    They make huge profits every year off of their customers, so I guess their costs aren’t as much as you’d lead us to believe.

  23. 23
    Robert Says:

    As far as it goes Robert jones and wake up the way I see it is like this they want to charge me (AT&T ) 36 dollars to buy a phone now you say all about the fiber optics electricity etc well I say that’s why I pay 350 dollars a month to them if they can’t handle waiving a 36 dollar fee to keep my business it must not be worth it to them btw if I upgraded all of my lines at once, it would be 180 on top of my 350 I’m sorry but 530 dollars is too much

  24. 24
    Robert Jones Says:

    Hmmmmm.. “Chuck” and Anonymous people may not have much experience as a retailer or small business owner. If you pay $350 and are complaining how about you just buy an unlocked phone? What does that really cost? Somewhere between $650 and almost $800.

    If your griping about a company charging when you make a credit check for a postpaid service, why not cough up the cash and buy the phone because prepaid is cheaper and no credit check or activation fee.

    Just like ATMS pay transaction and verify charges , companies that do credit checks pay pay pay pay pay other companies that own credit and identity information. They are recovering their costs. No activation fee? Don’t buy on credit.

    If you buy a house, car or even apply for college you pay an application fee because records checks cost money. If you come up clean on a credit check you are not paying a deposit, which means that $500+ phone amount (whether on 1 or 3 lines) is gong to get paid.

    Prepay is cheaper because it doesn’t incur the risk of an unpaid phone. Do the math. $700 phone sold for $200 with activation cost waived= $536 loss instantly. Take a family of 4 now that cost is $2144.

    Think of a wireless carrier adding plans with this loss in a quarter, even at a low ball number like 100,000 families of 4 so that 400,000 x $536 = $214,400,000. Yeup. Given that a major carrier can gain 7-10 million or more subscribers in a year, 400,000 people canceling within 90 days of activation is NOT an unlikely number.

    So let’s see…..averaging (averaging) $100 cost per smart line of service per month, that is $400×3 or $1200 earned for a loss of $2144 on the front end of the sale.Average ETF is $350 pro rated at let’s say $15 per month, so a major would tax you $1280 for ETF fees. $1200 earned for service and $1280 earned in ETF fees is……..$2480 dollars. So the carrier stuffed the deal for lets see $2480-$2144 oh my god $336 dollars for 90 days of service on a family of 4 which is $112/4 or $28 per subscriber. If we take this figure to a per hundred household count that gives us 400k subscribers x $28 11.2 million earned in a 90 day period for almost half a million people.

    So the cost is padded against loss and preventing loss to sustain operating costs and secure revenues. Every company that is in business does it, and the markup is not that big its really not. Even if the padded cost contains double the amount listed to ensure profits its still not that much when understanding that those profits go to operating costs.

    As for “Chuck” telling me to pull my head out of my ass I would like to know what he knows about how much margin their is in any service product including wireless mobile service. Again high volume purchase industrious that rely on credit financing are always hedging against a loss. Do you know how much it costs to build a cell tower let alone upgrade one to double capacity.

  25. 25
    John Says:

    Verizon now charges $30.00 upgrade fee (10-26-2013)

  26. 26
    NoMoreHighPhoneBill Says:

    Cell phone plans should not be this complicated, not to mention expensive. My carrier does not charge an activation fee nor does it have contracts. Very reasonable, too. I’m paying about $57/month (taxes and gov’t fees included) for unlimited talk and text and up to 2MB of 4G data.

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