Executive Summary: AT&T, based in Dallas, TX, is the largest provider of local and long distance telephone services in the United States. The company is divided into four divisions: AT&T Wireline (traditional voice and data landline service), Wireless, Advertising and Publishing and Other (includes the business integration software subsidiary).
Revenues in 2008 were approximately $123 billion dollars, an increase of 4.3% over 2007. AT&T Wireless is the nation’s second largest carrier by sales and subscriptions, accounting for over 77 million customers and $69.8 billion dollars of revenue. Within AT&T the Wireless division represents the largest area of growth, compensating for customers abandoning traditional Wireline telephone service. AT&T landed a major coup in 2007 when it signed a deal with Apple to be the exclusive U.S. carrier for the iPhone. Not only did AT&T add new customers, it added more profitable customers. AT&T reports that an iPhone customer’s average revenue per user (ARPU) is $105 per month versus $60 for non-iPhone customers.
AT&T’s corporate strategy for securing these profitable customers is to align itself with innovative technology, such as the iPhone, and pay a subsidy of $325 to Apple to make the iPhone more affordable for mainstream America, its target market. AT&T recoups the subsidy by locking iPhone customers into a two-year contract averaging $100 per month and maintaining this customer base through an exclusive contract with Apple.
Problem Statement: Despite attracting and capturing high revenue subscribers, AT&T is experiencing high customer dissatisfaction due to congested wireless networks. The greatest threat to AT&T Wireless is that iPhone customers will defect in droves if and when AT&T loses its exclusivity contract with Apple. Our analysis will focus on the root of this issue and provide marketing, strategic, operational and financial recommendations for AT&T Wireless. Our goal is to ensure AT&T drives long-term loyalty as opposed to operating on short-term borrowed brand equity from Apple.
Overview of Mobile Telecommunications Marketing: U.S. advertising spending by wireless carriers exceeded $3.6 billion in 2008 according to Brandweek’s “Super Brands” ranking. Market leaders Verizon Wireless and AT&T Wireless accounted for more than half of industry advertising, spending $1.3 billion and $1.2 billion, respectively. To put this in perspective, AT&T and Verizon outspent top brands such as McDonald’s, Walt Disney, and Home Depot in an effort to differentiate their services in what is essentially a commoditized industry. Wireless providers have typically advertised based on functional benefits such as the quality of their networks, pricing, voice and data plans, and number of user minutes. In particular, both AT&T and Verizon tout the reliability and strength of their wireless networks through memorable slogans. Verizon is well known for its “Can you hear me now” slogan while AT&T touts “More bars in more places”. Despite marketing based on
1functional benefits, the product (wireless phone service) is essentially becoming more and more undifferentiated. As a result, AT&T and Verizon devote billions of dollars to build brand recognition with consumers on an emotional level.
Key Issues & Analysis (SWOT)
(S) AT&T-Apple iPhone Relationship: AT&T’s primary competitive advantage within the wireless industry comes from its exclusivity deal with Apple to sell the iPhone. Within the first six months of the iPhone launch in 2007, AT&T activated 4.3 million iPhone 3Gs – 40% of these customers were new to AT&T. Moreover, in 2008 AT&T added more wireless subscribers, led the industry in data services growth, and had twice as many smartphones than any other carrier in 2008. The exclusivity deal not only increased customer...
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