The New AT&T and the Ghost of Services Past

Stephen M. Dye, Consulting Analyst, Mobile Applications & Services

Consolidation among telecom companies (driven primarily by mergers and acquisitions) has led to the disappearance or recasting of several major carrier brands. The recent acquisition/consolidation of SBC/AT&T/BellSouth/Cingular is particularly noteworthy.

The Making of the New AT&T
As you may recall, SBC bought AT&T but chose to rename itself “AT&T” – the rationale being that the “SBC” name is the lesser known of the two (especially on a global basis) and thus the “AT&T” name would more likely serve to strengthen the business. Act Two of this M&A drama recently drew to a close with the acquisition of BellSouth by the “new” AT&T, meaning that Cingular Wireless (which was co-owned by AT&T/SBC and BellSouth) is now owned wholly by AT&T.

Up to this point, matters seem reasonable. The mergers/acquisitions created a very strong company with a very broad customer base and an equally broad roster of services and revenue sources. Moreover, future prospects will improve with the deployment of next-generation technologies such as IMS (IP Multimedia Subsystem), enabling the efficiencies of truly converged networks and the additional revenue opportunities from new applications and services. And if AT&T was to keep the “Cingular Wireless” name, the power of that now-obviously clever and well-established brand will continue to shine in the market and keep competitors awake at night.

So why is the new AT&T choosing to kill of the Cingular brand and instead recast the service under the “AT&T” name?

The Ghost in the Machine
For many wireless users, the name “AT&T” will not be warmly accepted.

First, it is important to remind ourselves just how poorly the “old” AT&T Wireless performed. As a wireless company, AT&T failed in terms of customer service, network coverage, and quality of service. In other words, AT&T Wireless failed utterly and totally, a syndrome which alienated its subscribers and undermined its Street value. In the end, it was finally scooped up by Happy Jack (who with AT&T Wireless in the house could now operate a network with improved density, better coverage, and a larger subscriber base – a sure crowd pleaser for both subscribers and Wall Street).

Fast forward to 2007. The names “AT&T” and “quality wireless services” are for many consumers a contradiction in terms, and associating the two will remind consumers of all they went through as AT&T Wireless customers. It’s hard to forge a quality relationship on such a foundation. Those currently under contract with Cingular will (once again) have little choice in the matter -they will be forced into staying on in order to avoid contract cancellation fees. But when it comes to renewals, will the ghost of AT&T past “scare” them into migrating to Verizon, T-Mobile, or even an upstart with a more finely-focused offering such as Amp’d Mobile?

Second, what does the name “AT&T” stand for? American Telephone and Telegraph. Unless I am mistaken, those of us in the connected and mobile world don’t have “telephones” – we have Blackberries, smart phones, PDAs, or mobile phones, and I’m relatively certain we’re not sending telegraphs, preferring SMS or email instead. This represents a major branding error – using an archaic brand name to define next-generation services (a brand name which will be seen on over 50 million next-generation handsets).

We live in a world where “Ford” is Wall Street’s new four-lettered F-word, a problem which has cost the company billions to overcome. It will prove similarly bothersome for AT&T to avoid similar problems when it re-brands the Cingular service. Yes, most consumers don’t care what the name of a company is. However, when the name says “antiquated technologies and poor service,” you have a potential problem on your hands.

All Together Now
In AT&T’s defense, it makes sense to have services collected together under a single brand – especially as bundled services begin to define and differentiate service providers. Converging networks and services to bring together disparate services means companies can provide a fully-integrated, seamless service experience.

Enter the new AT&T, a company which offers premised-based voice, video, and data, as well as wireless services, all under a single brand. But it’s the wrong brand – the company providing this virtual “one-stop shop” should be Cingular, the new Cingular.

Sprinting at the Speed of Sound
For Sprint to purchase Nextel was prudent. Nextel’s iDEN push-to-talk service was more singular than any other carrier, not to mention profitable. Given Sprint’s market share battles with larger operators such as Verizon and Cingular, adding Nextel to its arsenal meant welcome revenue and excellent growth prospects in the more sticky vertical market segments Nextel served.

Similar to what AT&T is doing with Cingular, Sprint chose to dilute the Nextel brand and instead push the parent brand on Nextel services, a move which has had the devastating effect of increasing customer churn. Sprint’s Q4 2006 churn has already grown to more than 300,000. Sprint-Nextel users are extremely confused as Nextel is no longer a brand with its own identity but has instead become a very small part of the Sprint brand. Nobody does push-to-talk anywhere near as well as Nextel, nor will they unless they invest heavily in improving network density. It does not matter if the reason for this churn is irrational or due to some knee-jerk “Where did Nextel go?” consumer reaction. The Nextel name was phased out far too quickly, and customers and investors are speaking loud and clear. In fact, “Sprint” precisely describes the pace at which both investors and subscribers have fled from the new Sprint.

AT&T should have paid attention to this phenomenon. Or should now do so, as it’s not too late to change direction.

Closing Comments
Although the range of consumer choice is diminished with every telecom merger, it could be argued that there is at least one beneficiary: the investor whose holdings appreciate due to the improved efficiencies and wider margins that are said to follow. But with commoditization of services and egregious branding errors, no one – repeat, no one – apart from the short sellers will benefit.

The new AT&T may enjoy certain improved efficiencies when compared to the sum of the separate operations prior to the mergers. Lower marketing costs for mobile services, however, will not be one of them. AT&T will have to spend more to overcome the ghost of AT&T Wireless than it expects.

Essential viewing for this article is a video clip hosted on YouTube. Here, TV funnyman Stephen Colbert takes you on an abridged history of the AT&T brand from the 1980s to today.

 

About the Author Stephen M. Dye

Over twenty-four years in the wireless industry has given Stephen a unique perspective of the business. He has served in a variety of roles including business development and operations, product research and development, Principal RF Engineer, and CEO. Mr. Dye has been involved in technology trials for Motorola iDEN, LMDS and has managed a complete ground-up design of a fifty-site, Nextel iDEN network as well as the integration of an SMS gateway and SMSC to three Tier-1 carriers as CEO of an MVNO startup.

Stephen is also the author of five books on GPS, M2M and Wireless IM. He is fluent in the German language.

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