AT&T hikes its Administrative Expense Fee by 50%

September 8th, 2016 by · Leave a Comment

This Industry Viewpoint was contributed by Theresa Knutson of TechCaliber Consulting and Andrew Brown of Levine, Blaszak, Block & Boothby, LLP

If you're an AT&T customer, the cost of your telecom services is about to go up.

Earlier this month, AT&T quietly announced a 50% increase in its Administrative Expense Fee ("AEF").  The AEF is a percentage-based fee that AT&T applies to its customers' expenditures for interstate and international telecom services, including interconnected VoIP.  The announced fee hike raises the AEF from its current .88% to a whopping 1.36% beginning on September 1, 2016.

If you want to know why (and how) AT&T is imposing this fee increase on its customers, it's important to understand that AT&T invented the AEF over a decade ago as a way to generate additional revenue without actually having to raise the rates it charges for its services.  Although the fee supposedly covers AT&T's "internal costs" for complying with its government-mandated Universal Service Fund ("USF") obligations, there's no verifiable or even likely relationship between the two.  The AEF is more accurately described as a revenue enhancement mechanism cleverly engineered (and misleadingly named) by the AT&T finance department.

By way of comparison with AT&T's primary competitor in the enterprise space, Verizon purports to cover its administrative expenses by imposing a similar fee of "only" 0.38%.  (Verizon actually reduced its fee last quarter from 0.45%).  It's worth remembering that Verizon did not even impose an administrative cost recovery charge until 2013, nearly a full decade after AT&T first rolled out the AEF.  But with AT&T collecting a rich 0.88% premium and labeling it "cost recovery," Verizon could appear reasonable (and a marvel of internal administrative efficiency!) by soaking its customers for less than a third as much as AT&T while still generating a very nice supplementary revenue stream.

Adding insult to injury, when the carriers impose these revenue generating add-on charges, they create an additional financial burden on their customers.  Because carrier USF obligations are calculated based upon the revenues generated from certain telecom services, when the carriers apply the government mandated USF contribution factor to their revenues, they include the revenues generated by these administrative expense fees.  In the case of AT&T, that adds another .24% onto its customers' cost for assessed telecom services.

Here's what the real numbers for end users look like:

AT&T Verizon
USF-Q3, 2016     17.90% 17.90%
Administrative Expense Fee     1.36% 0.38%
USF on Administrative Expense Fee     0.24% 0.07%
Total USF and Administrative Fees     19.50% 18.35%

So, for every $10 million per year a customer spends with AT&T on USF assessable services, AT&T's recent increase in the AEF imposes $56,000/year in increased costs to you.

If you're hoping to understand why AT&T's internal costs for collecting money from you and paying it to the government are 3.5 times higher than Verizon's, or why AT&T's internal costs for moving money from its customers to the USF administrator went up by 50% last month at the same time Verizon managed to reduce its internal costs, or whether there was a change in the USF that imposed significant costs on AT&T (there wasn't), don't bother.  These fees are not mandated by the government nor are the carriers required to pass through these internal expenses to customers.  They are nothing more than discretionary charges that end user contracts typically permit the carriers to charge and unilaterally change.

We wanted to share this news with you in advance of its implementation so that you can check your contracts to ensure AT&T is entitled to pass through these fee increases to your company and, if they can, plan your budgets accordingly for the increases in the coming months.

You can view the AT&T's administrative expense fee change notice here.

If you have any questions regarding this notice or would like to discuss effective strategies for dealing with the financial impact of carrier surcharges, please feel free to contact TC2's Theresa Knutson or LB3's Andrew Brown.

 

Categories: Government Regulations · ILECs, PTTs · Industry Viewpoint

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