Aug. 1, 2006 at 6:00 AM ET
When is a $79 cell phone cheaper than a $49 cell phone? Welcome to mobile phone mathematics.
That snazzy new cell phone the store clerk just talked you into probably costs more you think thanks to a sneaky fee known as the "phone upgrade fee." You might think you walked out of the store with a great deal on a phone and a steal of a monthly plan for $34.99 per month. But this phone upgrade fee – a fee you might not even realize you'll have to pay later on -- could cost you more than a month's worth of minutes.
I'm sorry to report this: To the complicated calculus required to make an informed purchase of a new cell phone and plan, you must add "upgrade fees" as a variable. And no, this is not the same as the "activation fee" you're probably already familiar with. This fee is levied against loyal customers who choose to stay with their carriers and purchase a new phone.
Julie-Ann Klein, a Washington, D.C., area real estate agent, found out about upgrade fees the hard way.
Klein had an old AT&T Wireless phone and decided recently to get an all-in-one gadget that let her make calls and receive e-mail on the road. Cingular acquired AT&T Wireless two years ago, so Klein had to turn to Cingular for the new e-mail phone.
The gadget worked just fine, and she had no complaints, until the first bill came. On page four of the 22-page bill, there was a long list of "other services" with cryptic names like "IntlRmS/C Am/Car1.99," and "IntlRmMidE/Afr2.49." Next to each was an entry under Total Charge listed as 0.00. But at the bottom of the list was this entry: "Promotion for Upgrade Processor." Charge for that service: $18.
Klein was furious. She says she was never told about the fee. When contacted, Cingular held its ground and refused to remove it.
"My husband spotted it. He said, 'What's this?'" Klein said. "It's frustrating to know that these extraneous fees are being charged without being sufficiently disclosed. ... On top of the other charges, (the fees) really add up."
Cingular says it all upgrade fees are disclosed to all consumers before they sign cell phone contracts.
Surprise can cost you $36
But one thing is clear: plenty of consumers are surprised by the upgrade fees. An Internet search reveals a flood of complaints about them. And Cingular's $18 surprise isn't the only fee generating complaints.
Nextel customers who get a new phone can pay as much as $36 in a subsequent bill for the right to use the new phone. Sprint customers also face as much as $36 in fees for what some bills call a "handset upgrade fee." Plenty of consumers call it by other, less polite names.
In at least one lawsuit, the practice is called illegal. Earlier this month, Cingular was sued for allegedly unfair practices in a Seattle federal court by plaintiffs seeking class-action status. The suit alleges that former AT&T Wireless users were forced to upgrade to Cingular's network and then given the choice of paying either the upgrade fee or a $175 early termination fee. The suit hinges on the allegation that Cingular intentionally downgraded the AT&T Wireless network, effectively pushing consumers to either upgrade or quit.
Cingular's Mark Siegel said the lawsuit is baseless and called it a "publicity stunt ... built on thin air." He added that former AT&T Wireless customers did not have to pay the $18 upgrade fee if they chose to join Cingular's network.
In Klein's case, Cingular says she had already upgraded her phone once before, and her $18 fee had been waived previously -- that's why she was charged the upgrade fee.
Internet advice bulletin boards, by the way, are full of consumers who claim complaining worked. Many say the fee was removed after a call to customer service.
What do you get for your money?
A natural question for consumers who discover the fee is this: What am I paying for?
For an entertaining set of answers to that question, I found this Web site,
where several writers who identify themselves as cell phone retailers describe their answers to that very question. Here are just a few.
•"I just tell them that it's California law and Cingular doesn't get any part of it. I also tell them I think it sucks too."
•"If someone asks me why upgrade fees are charged, I simply tell them that it is so I can get a paycheck. Most people just laugh and end up signing up."
•"I tell people that I honestly do not know why they are charging the upgrade fee or what it's actually for."
•"(I) wait till it pops up on their bill. Never when selling the phone."
And my personal favorite:
•"(An) easy way of rephrasing about the upgrade fee is pulling a magic string and showering them with confetti and balloons and telling them YES WE WILL NOT WAIVE YOUR UPGRADE FEE - They will be so happy and leave your store smiling about all the confetti you just poured on their head."
Now you know what mobile phone retailers think of you. There are more answers at the site, so it's worth reading. None of those answers are official, however. Here's Sprint's answer, from spokesman Mark Elliot.
"The upgrade fee is standard across the industry," he said. In Sprint's case, consumers pay $18 for upgrading online, $36 if they walk into a retail store and buy a phone.
I asked Elliot what consumers were getting for that $36. After all, when I get a new phone, I watch the clerk press a few buttons, and in an instant, my new phone works and my old one doesn't. How could that cost $36?
"It's for the process of changing your handset out and programming the new one … (and) making adjustments to your account," he answered.
I got a similar explanation from Cingular.
Verizon and T-Mobile – no upgrade fees
But I got very different answers to my questions from Verizon and T-Mobile. Neither charges upgrade fees, challenging the notion of "standard industry practice."
Here's my problem with upgrade fees. Consumers don't pay the fee when they buy the phone. Instead, it's tacked on to a future bill -- a bill that arrives after it's too late to cancel the contract. In Nextel's case, the fee might not appear on a bill until two months go by.
That puts consumers at a distinct disadvantage, and leads to surprises. After all, Sprint, Nextel and Cingular can't control the dialog that occurs between retail salespeople and customers. Perhaps those fees are disclosed on a lengthy form or during a verbal exchange at some point, but how can these firms be sure consumers understand?
Actually, there is a way: Put the fee on the price tag, and make people pay it up front. That will end the surprises, and allow consumers to compare apples to apples when upgrading their phones.
After all, a $49 new phone starts to sound quite a bit less appetizing when you find out the price is really $85. It's enough to make a $79 phone sound downright cheap by comparison.
Ultimately, consumers are frustrated because the number they see at the bottom of their monthly bill is often so much bigger than the price they see in the store window. Have you been surprised by your cell phone bill? Share your frustration below.