The administrative increases will bring in hundreds of millions of dollars in additional revenue for the companies

BTIG analysts estimate that AT&T’s recent administrative fee increase could give it enough cash to finance more than $12 billion of debt.
BTIG analysts estimate that AT&T’s recent administrative fee increase could give it enough cash to finance more than $12 billion of debt.PHOTO: CHRISTOPHER LEE/BLOOMBERG NEWS

AT&T Inc. T -0.25% and Sprint Corp. S -0.55% have recently raised the administrative fees they charge customers, moves that will bring in hundreds of millions of dollars in additional revenue for the companies.

AT&T, the second-largest U.S. carrier by subscribers, has more than doubled the administrative fee it tacks on to the bottom of many wireless customers’ bills. The monthly fee, which affects most noncorporate wireless plans excluding prepaid service, recently hit $1.99, up from $1.26 earlier this year and 76 cents in 2017.

Financial-services firm BTIG estimated the higher fees could add $970 million to AT&T’s annual revenue and throw off enough cash to finance more than $12 billion of debt.

The extra cash could be crucial as AT&T works to pay down about $180 billion of net debt. The company closed its $81 billion takeover of Time Warner Inc. earlier this month after a federal judge denied a government antitrust lawsuit challenging the deal. The transaction made Dallas-based AT&T the most indebted nongovernmental corporate-bond issuer in the world, according to Moody’s Investors Service.

The telecom company followed up the Time Warner acquisition with a $1.6 billion deal for advertising technology company AppNexus.

Aside from debt, AT&T must also cover its dividend, which paid out more than $12 billion to shareholders last year.

AT&T said it isn’t alone in charging fees atop customers’ base service rates. “This is a standard administrative fee across the wireless industry, which helps cover costs we incur for items like cell site maintenance and interconnection between carriers,” a spokesman said.

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Fee increases are a common way for carriers to offset costs without risking the loss of too many customers, said Matt Wood, policy director for Free Press, a consumer advocacy group.

“These companies are taking on massive debt and they have to find some way to pay for them,” he said.

AT&T and Sprint declined to comment on whether they increased administrative fees to help pay down debt.

Sprint raised its monthly administrative charge to $2.50 from $1.99 earlier this year. The 51-cent increase would amount to nearly $200 million in additional annual revenue if applied to all of Sprint’s 32.1 million postpaid wireless lines. A spokeswoman said the user fee covers payments to local telephone companies, property taxes and legal obligations, among other expenses.

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Verizon Communications Inc. said it charges subscribers a $1.23 monthly administrative fee help cover similar operating costs.

T-Mobile US Inc.’s base rates cover all monthly service fees and sales taxes.

Sprint and T-Mobile in April agreed to an all-stock merger that would combine the country’s No. 4 and No. 3 wireless carriers. The Federal Communications Commission and Department of Justice are reviewing the deal’s effects on competition, a process that is expected to take several months. Sprint had $32 billion of net debt on its balance sheet at the end of March.

Consumer advocates have complained for years that wireless companies use misleading terms to describe their “below-the-line” fees.

Administrative charges are often listed alongside federal and state taxes, suggesting they cover government-mandated costs. Carriers actually set administrative fees at their own discretion.

The companies do explain the charges in writing and disclose fee changes through bill inserts and other notices attached to customers’ monthly statements.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

COURTESY: WSJ

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