Most cellphones sell for less than their actual production cost, with the cellular network paying the difference as an incentive to buy. In exchange, customers promise to use the service for a set period, usually two to three years. When subscribers cancel early, phone companies charge a cancellation fee, usually citing the need to recoup the cost of the subsidized phone.
Though AT&T isn’t subsidizing the iPhone’s weighty price of $499 to $599, depending on the storage capacity, the company will charge a $175 termination fee for iPhone users who want to break their two-year contracts.
AT&T spokesman Mark Siegel said that termination fees pay for more than phone subsidies.
“There are certain fixed costs we incur in serving every customer who establishes service with us.”
AT&T has had to substantially beef up their network in preparation for the increased bandwidth traffic, spending more than $50 million dollars to network upgrades.