Cell Phone Fees

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Mobile phone plans covering call minutes, text, and data are always in flux, but one annoying part of the bill is more or less constant -- cell phone fees. Consumers can be certain that no matter the sticker price for a phone plan with a service contract, the final tally will be higher once fees are added in. Some mobile phone charges are taxes, surcharges, and fees levied by the local, state, and national governments and thus unavoidable. The Verizon Wireless customer agreement warns that these alone can bump up your bill more than 40 percent depending on location. Others, such as activation fees and overage charges, vary by carrier and sometimes can be tamed by disciplined and determined users.

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Cell Phone Fees Guide

As many consumers know full well, interpreting a mobile phone bill is often an exercise in frustration. And comparing the fees and fine print for the four major carriers when it's time to choose among them is downright exasperating. To shed some light on these matters we researched the various fees for smartphone use that appear on monthly statements sent out by AT&T, Verizon Wireless, Sprint, and T-Mobile, which together claim more than 90 percent of U.S. subscribers, according to research firm Strategy Analytics.

Ultimately, we concluded that T-Mobile offers the most consumer-friendly policies, followed by AT&T, with Verizon Wireless and Sprint bringing up the rear. T-Mobile doesn't charge an upgrade fee for existing customers or an activation fee for a new line while the three other major carriers charge at least $30 for each action. Additionally, all T-Mobile plans include unlimited data, so there's no possibility of getting socked with overage fees for exceeding a data limit. By contrast, AT&T and Verizon Wireless charge $10 and $15 and up, respectively, for each extra gigabyte (GB) of data. Sprint charges 1.5 cents for each extra megabyte (MB) but also offers unlimited plans.

In a groundbreaking change in policy, T-Mobile has also eliminated international roaming fees as of Oct. 20, 2013. Standard post-paid plans automatically include unlimited data and texting, as well as calling rates of 20 cents per minute from outside the U.S. The data speed is slow -- about 2G -- so the company offers high-speed data passes for $15-50 depending on the amount of data and the number of days of access needed. By contrast, the other carriers charge high roaming rates for calls, messaging, and data during travel outside the U.S. and sell pricey international data packages to reduce the rates. For instance, AT&T levies up to $20 per MB of international data roaming. That can be alleviated by data packs starting at $30 for 120MB, cheaper than the Sprint deals and about on par with the Verizon Wireless package. Lest there be any confusion about the value of these international data plans, know this: Uploading 25 pictures from an iPhone 5 abroad without a data package with AT&T, Sprint, or Verizon would cost approximately $750.

To get a handle on the array of extra charges, we organized the cell phone fees into three broad categories: carrier-imposed fees that can be avoided or lessened by switching carriers or plans, usage-related fees that can be avoided by changing usage patterns, and fees that represent taxes and surcharges and remain (almost) the same regardless of carrier. Details for the four major carriers are provided in the accompanying charts. Our research skipped over plan particulars, but it's worth remembering that many fees, such as overage charges for minutes or text messages, depend on the carrier and the specific plan.

We found that the highest cell phone charges attach to international calling and data usage and can be mitigated with a little forethought. Customers who need to call other countries while residing within the U.S. can arrange for service additions costing up to $10 a month (depending on carrier) that reduce calling rates to select countries. Cell phone fees while traveling abroad likewise can be trimmed by buying an international plan, although it's imperative to keep an eye on data usage, which is costly in foreign locales.

We also discovered mobile phone charges that may be tacked onto monthly statements but aren't assessed by the carrier or by any government. Referred to as cramming, these charges reflect services (often useless) that consumers are pressed into accepting by third parties and did not authorize or receive, or whose true cost has been obscured. Such charges may appear on bills with uninformative labels, such as "membership fee," in the hope that customers won't notice.

Bottom line: When it comes to cell phone fees, it pays to be an informed consumer.

Early Termination Fees and Other Carrier-Based Charges

We identified three types of wireless fees that can be lowered or avoided by choosing the right carrier (although some, such as the notorious early termination fee, are more pervasive than others), by changing phone usage practices (e.g., using less data, especially when outside the carrier's coverage area), or by closely monitoring your wireless bill. The first group of fees varies based on your carrier of choice, and these include activation, phone upgrade, and early termination fees, as well as charges for late payment and adding another line to a family plan (see chart). The second group, discussed on page 3, includes fees related to phone usage; i.e., charges for domestic overage or roaming and for using a phone internationally. We also researched "cramming," which is a term used to describe extra charges by third-party services that are attached to a phone bill and often overlooked by users, resulting in tens to hundreds of dollars in excess payments a year. These avoidable fees are discussed on page 4.

Activation Fee.

This one-time charge for opening a new line falls in the mid-$30 range at Verizon Wireless, AT&T, and Sprint. Only T-Mobile holds back, although it does charge $10 for a SIM card starter kit for new customers who don't already have a SIM card. One new Verizon Wireless customer writes on a company discussion board of defecting from Sprint after being hit with an activation fee, not realizing that Verizon Wireless demands the same toll. In reply, another Verizon Wireless user points out that activation fees are standard practice but says they are often waived during promotions by carriers or by third-party suppliers (such as Radio Shack and Best Buy), and sometimes even by customer service representatives who are eager to win consumer allegiance.

Phone Upgrade Fee.

This fee causes great umbrage among customers who regard it as just another money grab by providers. Phone upgrade fees range from zero at T-Mobile to $30 at Verizon Wireless and $36 at Sprint and AT&T. This fee, atop the price paid for the new phone, prompts many threats (often realized) to switch carriers. One Sprint customer took a stand when told the phone upgrade fee would be waived but then wasn't and a lengthy follow-up chat with customer service netted only a 50 percent reduction. He posted his conversation in the company's online forum and then switched to a budget carrier that doesn't charge as many fees. As with the activation fee, forum posts reveal that polite persistence sometimes pays off with a fee waiver or discount.

Early Termination Fee.

Consumers fed up with fees imposed by their current provider and considering a switch should stop and count to ten. Canceling a service contract invariably triggers the dreaded early termination fee (ETF). This fee varies by carrier and also depends on the type of device. The starting ETF for smartphones (and other "advanced" devices) exceeds $300 with Verizon Wireless, AT&T, and Sprint and slowly drops as the original contract expiration date nears; the T-Mobile ETF starts at $200, but all new T-Mobile contracts are month to month, which means no ETF to fret over. This fee is notoriously difficult to avoid because it facilitates customer retention.

That said, a contract breach flaps both ways. When AT&T added an administrative fee in May 2013, some people claim to have ended their contracts prematurely without paying the early termination fee. Most customers have no such luck with AT&T, although other posts indicate that some have secured a credit and some have entered into arbitration to void their contracts. Similar scenarios have played out with the other carriers as well.

Late Payment Fee.

Another carrier-imposed fee covers forgetfulness, as in, the bill was paid after the due date. Although many consumers arrange for automatic payment with a credit card or bank transfer (both of which make it easy to miss or overlook extraneous charges), anyone who writes out a check or executes a bank transfer each month will be fined for a late payment, sometimes after one day and sometimes after a grace period (subject to state regulation). AT&T charges $5 for tardiness compared with the greater of $5 or 1.5 percent of the amount due at T-Mobile and Verizon Wireless. Sprint charges the maximum allowed in each state, which tops out at 5 percent of the bottom line.

Additional Line Fee.

Family plans offer groups of people (not necessarily related) an opportunity to lower the monthly mobile phone bill by sharing services. Sharing minutes and data can also lead to disputes about overage fees, so check out plan features very carefully; some offer unlimited everything. Also consider how many people want in on the sharing, as well a the fee for adding a line. T-Mobile allows a maximum of four lines with a low $10 fee for the third and fourth (the first two come bundled for $80), while Sprint allows up to 10 but charges $40 for the second, $30 for the third, and $20 for each additional.

Administrative Fee.

Carriers justify the administrative fee as necessary to defray operating costs, generally those charged by local carriers for handling wireless calls and/or renting and maintaining cell sites. Administrative fees range from 61 cents for AT&T customers to 90 cents (for each line) with Verizon Wireless and up to $2.50 with Sprint. Online comments we read indicate these small fees enrage customers more out of principle than out of anger over the actual amount. AT&T came late to the game when it instituted an administrative fee earlier this year; Verizon Wireless and Sprint have been doing so since 2005 and 2008, respectively. T-Mobile takes a different tack and charges no administrative fee but has the highest regulatory programs fee, which it says helps pay for the cost of abiding by government mandates. (The three other major carriers impose similar, though lower, regulatory fees; see page 4 for details.) Customers have little chance of wriggling out of administrative or regulatory recovery fees.

Roaming Charges and Overage Fees

When mobile phone bills hit the five-digit mark and make the news, overage charges and/or data roaming are often to blame. Although such fines can be as small as a nickel per text message over the plan limit, they add up quickly. T-Mobile plans include unlimited talk, text, and data, but the other major carriers assess overage charges (see chart). Fees for downloading ringtones or apps apply across the board. Also note that calls to the 411 directory service come with a fee of up to $1.99, but that can be avoided by calling the ad-supported 1-800-free411. It's safe to say that, without an unlimited plan, the only way to get out from under excess usage fees is to talk, text, and use data less.

Overage Charges.

More and more wireless plans include unlimited talk and text, leaving data overage charges as the most costly to consumers. Exceeding a plan's data limit often results in a penalty; $15 at Verizon Wireless beyond 500MB (megabytes) or 1GB (gigabyte) of data, depending on the plan, and at least $10 for each extra gigabyte at AT&T, for example. Sprint charges 1.5 cents for each additional megabyte on plans with monthly limits of 1GB, which means minimal overages cost much less with Sprint but going over by a full gigabyte (i.e., 1,024 megabytes) would cost just over $15. A new unlimited plan unveiled by Sprint in July 2013, however, gives smartphone users the option of paying $30 for unlimited data compared with $20 for 1 GB. All T-Mobile plans feature unlimited data, although transmission speeds are throttled when usage exceeds certain limits.

Roaming Charges.

The issue of roaming fees for wireless calls originating within the U.S. is no longer as pressing as it was 10 years ago. While users do roam when calls are placed from outside a provider's coverage area and must connect to a third party's signal, fees for doing so largely have disappeared. But deep in the service contract fine print are limitations on how much roaming is allowed. Generally speaking the majority of mobile phone activity must occur within the provider's coverage area, otherwise the carrier reserves the right to discontinue service, although the punishment is more likely to be an end to roaming service than a fee or outright banishment. For example, T-Mobile turns off data while roaming when users reach their plan's limit. Sprint's unlimited plans only pertain to usage over Sprint's network; excessive use of voice or data while roaming (defined as more than 50 percent of usage) prompts outreach from a company representative to encourage a change in habits or to announce free roaming is being terminated or suspended.

International Charges.

Fees increase dramatically when sending a message or calling someone overseas, and even more so when traveling abroad. The four major carriers offer international upgrades to service plans to help mitigate such costs. For example, Verizon Wireless charges $3.99 a month for access to reduced rates when calling abroad, Sprint charges $4 for the privilege and also offers a $15 monthly package for discounted rates and unlimited texts when reaching out beyond U.S. borders.

AT&T offers data bundles starting at $30 for 120MB for international travelers, which is hardly cheap but sure beats a $1,800 or $2,400 international data roaming charge for the same amount of data without the bundle (at 1.5 cents per kilobyte in Canada and 1.95 cents elsewhere). Money-saving packages are also available for calls home. The calling plan at AT&T starts at $30 a month for 30 minutes for calls made from the "Europe region" compared with $1.50 for calls made without the international upgrade.

T-Mobile stands alone in including unlimited texting and data in more than 100 countries along with its Simple Choice and New Classic plans, making it a potentially great option for travelers. The service isn't intended for heavy data users, though, as speeds are capped at 128 kbps (about 2G). Packages with faster data connections are available at a cost of $15 for 100MB in one day, $25 for 200MB over 7 days, and $50 for a two-week pass with 500MB of data.

With the other carriers, international travelers are advised to upgrade before setting off to avoid a bankruptcy-inducing bill, but do take note of plan details. Relying on Wi-Fi connections while abroad is often the best way to hold the line on international roaming. Skype offers a monthly plan for $2.99 that allows unlimited calls from anywhere in the world to mobile numbers and landlines in the U.S. and Canada -- but you need a smartphone to access the Skype app and Wi-Fi to place the call. Indeed, travelers with smartphones who can tap into a free Internet connection have several options for connecting with home at no cost. Viber and WhatsApp are two popular messaging services that let members send free text messages to and from anywhere in the world. Viber also lets users place calls for free. Unlike the Skype plan, Viber and WhatsApp require the recipient to also have the program installed.

Cell Phone Taxes, Surcharges, and Cramming

Cell Phone Cramming.

With so many cell phone taxes, fees, and surcharges it can be hard to decipher a wireless bill. Crammers rely on this muddle to reap revenue from unsuspecting consumers for services they are duped into signing up for or for which they have been enrolled without their knowledge or permission. A video posted by the Federal Communications Commission warns that telephone numbers are similar to credit card numbers in that crammers with access to a phone number can submit illegitimate charges to a carrier that then appear on customers' bills.

Here's sound advice: Scrutinize your monthly statement carefully. If a new, ambiguously labeled fee -- "other fee," "membership," "service charge," etc. -- suddenly appears, you may have been crammed. The charge may be as low as a dollar in hopes that you won't notice or that you'll pay and forget about it, but some cramming charges are far more expensive ($10 is not unheard of). Such vague labels give the impression of valid fees originating with the carrier when in fact they're actually coming from a nefarious third party. The FCC's truth-in-billing rules require telephone companies to clearly show where the charge originated; it could look legitimate, but don't be taken in.

Tracking down the source, however, and then pressing to have the illicit charges removed, can take hours and success is not guaranteed. Mobile phone service providers aren't responsible for these charges even though they show up on their bills and in the absence of customer consent. Still, carriers may help pay on rare occasions. Consumers can take precautions against cell phone cramming, such as asking the provider to block access to 900 numbers and prevent third parties from adding service charges to a bill. Allowing select third parties -- such as the Red Cross, which often raises money via texts after major disasters --remains an option.

Other phone-based scams exist and experts advise people to never give out personal information, like an address or Social Security number, over the phone. Some scams even rely on common mistakes, such as misdialing a 1-800 number that connects to someone looking to make a quick buck.

Cell Phone Taxes and Surcharges.

Now for fees that show up on every mobile phone bill, regardless. Often these are local, state, and federal taxes that phone companies are required by law to collect. These charges range from a few cents to a percent of the total bill and vary by state and municipality. The difference between living in Oregon and Nebraska, for example, is more than 15 percentage points when comparing the combined average of federal, state, and local tax rates, according to the Tax Foundation.

For context, we've divided the fees into two categories -- government-imposed and carrier-imposed -- and identified the beneficiaries. Revenues raised by government-imposed cell phone taxes and fees are used for public purposes while carrier-imposed fees are used to offset the carrier's operating and government-related costs.

Government-Imposed Fees:

  • 911/E911:

    Supports local communications systems used by the police, fire department, and ambulance services.
  • Municipal Surcharges/Fees:

    Helps pay off government bonds.
  • Sales Tax:

    Assessed by many state, county, and city governments to support services.
  • Federal Exercise Tax:

    A national tax on phone services and facilities.
  • Miscellaneous Local Government Fees:

    Many large cities, including Boston and New York City, tax phone service to raise revenue for projects such as infrastructure improvements.

Carrier-Imposed Fees:

  • FCC Line Charge/Access Charge:

    Supplements the cost that long-distance carriers pay to local service providers for access to their networks.
  • Federal Universal Service Fund (USF):

    Offsets the carrier's contribution to the USF, which helps support service to high-cost areas and subsidizes costs for low-income users. A portion goes toward telecom services in schools, libraries, and select healthcare facilities. The rate currently sits at 15.6 percent but varies quarterly based on an FCC calculation.
  • State Universal Fund (SUF):

    Offsets the carrier's contributions to state universal funds.
  • Gross Receipts Tax:

    Offsets city, county, and state taxes on telecommunications providers.
  • Regulatory Charge:

    Offsets the carrier's cost of complying with local, state, and federal regulations. These range from 21 cents per line with Verizon Wireless to $1.61 per line with T-Mobile. (Note that T-Mobile does not charge a separate administrative feed, as do the other carriers.)
  • Local Number Portability (LNP):

    Covers the cost of letting customers retain their phone number when switching providers.
  • Telecommunications Relay Service (TRS):

    Pays for relay centers used to send and translate calls to customers with hearing or speech disabilities.