Killing the Goose: How AT&T Frittered Away Its iPhone Advantage

Everyone knows the key to a successful brand is differentiation. Two years ago this month, when Steve Jobs introduced the iPhone, he made AT&T the exclusive service provider for the iPhone. Since then 8.5 million iPhones have been activated. Today some 12% of AT&T’s total subscriber base uses the iPhone—a revenue generator worth $799 million a month. Not only is it a differentiator, it’s a new business engine. Roughly 40% of AT&T’s new customers come via the iPhone.

By every measure—revenue per customer, cancellation rate, etc.—AT&T’s iPhone customers are worth well above the average wireless subscriber. Today thanks to the continuing excitement over the iPhone and its exploding world of 50,000 downloadable apps, AT&T enjoys twice the smartphone usage as all other carriers combined.

But while Apple has refreshed and improved the iPhone twice in the last two years, AT&T has not used this window to improve its service. Though AT&T claims to have the fastest 3G network—users know how slow downloading can be. And, though AT&T’s advertising touts “more bars in more places” its users live with the frustration of dropped calls.

As a result, if Apple doesn’t agree to extend its contract for service exclusivity with AT&T in 2010, it’s hard to calculate how many iPhone users will escape to a competing service—but the loss, in most cases to Verizon, will be substantial.

But this is crazy. AT&T will never have this kind of opportunity again. A subscriber, after all, isn’t a one-time charge, but a cash cow that keeps on earning revenue and profit, month-after-month, year-after-year.

Here’s what AT&T needs to do in a hurry:
• Come up with a higher service standard. [Example: “If we drop your call, the next call is on us.”]
• Come up with a better response mechanism that indicates you’re serious about service. [“We have real live operators standing by to answer your complaints.”] Ten years ago the cable companies had a service/ image problem. Today, you have an outage and call your cable company. Someone not only takes your call but either fixes the problem over the phone or makes an appointment to send out a technician the next day – and then doubles back to be sure the technician appeared and you’re satisfied.
• Meet expectations on the value proposition. You can be sure that AT&T will not be alone with 3G for very long. Either raise the speed of downloads or give customers a break on subscription fees. If AT&T’s service is not demonstrably faster and better than the competition, it better be cheaper.

Just saying you are the best doesn’t work anymore. Customers know to discount braggadocio. And eventually state attorneys general will begin filing lawsuits if a carrier doesn’t live up to its promises.

Certainly someone at AT&T senses the problem and is working on a fix. The question is whether improvements will be strong enough and appear soon enough to give the AT&T brand some luster before the clock runs out. It’s going to be an exciting race to watch. Meanwhile, though AT&T reportedly isn’t happy about paying Apple $10 a month for every subscriber, it’s hard to believe they wouldn’t extend that fee or even raise it to get Apple to give them another three year contract.