AT&T Magicphone PFC1
Introduction The American Telephone and Telegraph Company (AT&T) was incorporated in 1885. For nearly a century, AT&T provided universal phone service throughout the United States. AT&T would describe its primary business as the moving and managing of information: providing quality products, systems, and services in the United States and internationally. AT&T’s Bell Laboratories (Bell Labs), dedicated to basic research, had been the source of many quality products throughout AT&T’s history. The Bell System was dissolved at the end of 1983 with AT&T’s divestiture of the Bell Telephone Companies. At that time, the Federal Communications Commission chairman, Charles D. Ferris, stated, “Today we have removed the barricades from the door to the information age. Government will no longer be a barrier that prevents or delays the introduction of innovations in technology.” Today, AT&T operates worldwide in competitive, hightechnology markets with, principally, only its long distance operation remaining under government regulation. This case examines the development and launch of a new product, the AT&T Magicphone PFC, aimed at the industrial market, and also investigates AT&T’s defensive behavior in the face of an attack by a competitor with a comparable product. In the first part of the case (development of the Magicphone), AT&T must carry out several forms of analysis: early, judgment-based demand forecasting; positioning analysis relative to competing products; selection of advertising, promotion, and distribution levels; and profit analysis. Each of these forms of analysis is supported by spreadsheets in the Toolbox. The last part of the case explores the effects of competitive attack on the Magicphone and assesses AT&T’s defense options.
The Magicphone PFC In 1995, AT&T announced the Magicphone PFC (Phone-Fax-Copier) as a complement to its Magicphone Plus and System 25 communications systems. The Magicphone PFC is the first fully integrated business phone system with built-in fax and copier. The Magicphone Plus communications system is designed for businesses with a need for up to eight lines and twenty phones, and the larger System 25 serves businesses requiring up to 150 phones. These systems can be configured as a stand-alone office network, and the addition of the Magicphone PFC facilitates the use of either of these systems as an office automation hub incorporating fax and copier capabilities.
The name of the product is disguised, and some of the positioning and financial data are for illustrative purposes only. 1
The Magicphone PFC provides business users with the following features: 1. 2. 3. 4. 5. 6. 7. 8. Built-in facsimile system. Built-in photocopier. Built-in speakerphone. Conferencing. Personalized ring. Exclusive hold. Call pickup. Simultaneous phone and fax capability.
The Magicphone PFC has a projected retail price of $1175, while variable costs per unit are estimated to be $500. There will be a production setup charge of only $19,562 the first year and $1964 in Year Two. Furthermore, the only other new investment foreseen by AT&T for the Magicphone is a one-time $20,000 charge in 1994 (Year 0). Market Demand Estimation As a first step in assessing the total industry market potential for integrated business communications systems, AT&T secured the cooperation of ten of the communications industry’s leading futurists and technology experts in a Delphi probe. Each agreed to fill out a short mail questionnaire on long-run industry demand for products such as the Magicphone. Among other questions the experts were asked to provide their estimate of most likely industry demand by 1996, as well as optimistic and pessimistic (best-case and worst-case) scenarios. Initial results were tabulated and released to each expert, who was provided with the opportunity to make changes to his or her estimates after having looked at the opinions of the other...