Not only do you have to pay a $40 upgrade fee, but they will charge you $40 for that line for your data plan even if you have a "shared" data plan and are eligible for an upgrade ( out of contract)
A line is $15 on a shared plan. I wanted to uprgade my son's phone to an Iphone 5C and had two options. 1} ATT Next for 22.50 a month = 37.50 a month total monthly charge for 20 months then back down to 15 after 20 months or 2) $0 for the phone ( free phone! Yeah right) but $40 a month total for an additional 2 years ( so really $15 + $25) + an additional $40 one time upgrade fee. Guess what they want you to do by doing this? right, pushing you to NEXT. Doing the math, and not counting the $15 a month just to have that line, its $640 with a "free" phone and $450 for going the NEXT route. The have effectively eliminated phone subsidies.