Is the iPhone hurting AT&T's brand?

AT&T's exclusive deal to carry the iPhone has been a double-edge sword. While the iPhone brought it millions of new customers, half say they'd defect to another carrier.

The Apple iPhone has boosted AT&T's subscriber numbers, but network problems and a bevy of complaints from frustrated customers are likely hurting the company's reputation.

While a recent survey by the consulting firm CFI Group found that iPhone users are the most loyal smartphone users with 90 percent saying they'd recommend the device to a friend, half of all iPhone owners surveyed said they would like to jump ship to another provider if given the chance.

And for the first time, AT&T has scored worse than all four major U.S. wireless operators in terms of overall customer satisfaction for smartphones. According to the survey, AT&T scored 69 out of 100 among users, and 73 among non-iPhone owners. Verizon Wireless was the most satisfying carrier with a score or 79 out of 100 among smartphone users. Even Sprint Nextel, which has struggled to retain customers due to its poor reputation , scored better than AT&T among smartphone users. It got a 74 out of 100 in terms of customer satisfaction.

The figures are among the first to quantify growing dissatisfaction with AT&T's network.

"AT&T has never fared great in customer satisfaction surveys," said Doug Helmreich, program director with CFI Group. "But they've never been last. Now AT&T is coming up last among smartphone users. The iPhone has been a cash cow for AT&T, but that cash comes at a cost in terms of overall satisfaction."

Public relations and brand experts warn that if AT&T doesn't take steps now to correct its image that it could come back to haunt the company in the future. The main issue for customers is that many users, especially those in urban areas, report poor network coverage and service. Problems with AT&T's 3G wireless have been widely reported on blogs, Twitter feeds, and even in published reports from BusinessWeek and The New York Times.

Customers all over the country have complained about dropped calls and the inability to connect to the 3G network. CNET News writer Elinor Mills documented her frustrating experience with her iPhone in a blog post recently. The story hit a nerve among fellow iPhone users, and more than 400 comments were left on the story. Most of the comments corroborated the writer's plight. And the follow-up story on the same issue garnered at least another 300 comments from readers .

AT&T's company line
And yet, AT&T has not admitted any problem with its network. When questioned about potential problems with the AT&T network being overburdened by iPhone users, Mark Siegel, an AT&T spokesman, reiterated the company line: "We have a strong, high-quality mobile broadband network. It is the nation's fastest 3G network, now in 350 major metropolitan areas."

In fairness to AT&T, the company has acknowledged that it is upgrading its network to deal with increased demand from the iPhone. Siegel said the company plans to spend $17 billion to $18 billion on improving its wireless and wireline broadband networks in 2009. Of course, this is a few billion dollars less than what the company spent in 2008. During that year, AT&T's annual report indicates it spent $20.1 billion on capital expendituresfor its wireless and wireline networks. Still, $17 billion is nothing to sneeze at.

"The iPhone has been a cash cow for AT&T, but that cash comes at a cost in terms of overall satisfaction."
--Doug Helmreich, program director, CFI Group

Some of these improvements include deploying 850 MHz technology across AT&T's 3G markets to improve in-building coverage, adding nearly 2,000 new cell sites to improve overall coverage, and increasing capacity in thousands of cell sites with more backhaul infrastructure.

"We are the leader in smartphones in the U.S." Siegel said. "We carry more iPhones than any other carrier in the world and handle more wireless data traffic than other U.S. carrier. Because of smartphones like the iPhone, among many others, people have dramatically changed the way they use the wireless network with data usage exploding."

Indeed, Siegel is correct. iPhone users use the mobile Internet more than other mobile subscribers. So even though Verizon may rank high in terms of customer satisfaction, people are not using the network as much or in the same way as heavy iPhone users.

Still, Siegel said the company will look into the survey results from the CFI Group.

"We welcome and value all feedback from our customers," he said. "We view such feedback as an important opportunity to help us continuously improve our products and services. We will certainly look carefully at the CFI Group survey results to see what we can learn from it."

Of churn and confidence
For now, AT&T's potential image problems haven't been hurting the company. In July, it reported that it had reduced its churn rate, or the rate at which customers dump it service, yet again to 1.09 percent for subscribers on a contract. This is one of the lowest churn rates in the industry.

"The surest indication of customer satisfaction is churn," AT&T's Siegel said. "And ours is at record-low levels. Our own internal data suggests that our iPhone customers are very satisfied with AT&T."

But AT&T's confidence may be misleading. Currently, AT&T is the only U.S. wireless operator offering the iPhone. Once the exclusivity deal ends, which many believe will happen within a couple of years, dissatisfied customers may flee from AT&T to another carrier.

"I think it's safe to say that the same percentage of people who switched to AT&T for the iPhone, would likely leave if they believed they could get the same experience on a better network," said Helmreich. "And that could cause huge problems for AT&T since nearly half of its iPhone users switched from another carrier."

Public relations and brand experts such as Rob Adler, vice president at Vantage Communications, a technology public relations firm in San Francisco, say that AT&T must fess up to the reality if it doesn't want customers to punish it in the long run. Adler, who is an iPhone subscriber living in San Francisco, says there is no question that AT&T's network has been overwhelmed. Like many people living in a city, he experiences frequent dropped calls and a sluggish wireless Internet connection.

Even though AT&T is trying to fix its network, he said that denying there is a problem won't win it any points with frustrated customers.

"AT&T can say that there is nothing wrong with their network all they want," he continued. "But when someone is experiencing dropped calls and no access to the 3G network every day, they take it very personally. And it is very frustrating."

Andrew Gilman, CEO of CommCore Consulting Group, which specializes in helping companies manage their brand image, agrees. He said the first thing AT&T needs to do is correct whatever problem it is experiencing. And then it needs to listen to its customers and prove to those customers that the problems have been resolved.

He said that in today's highly connected online communities, companies that refuse to acknowledge their customers' complaints do so at their own peril.

"Even if the network is perfectly fine, if several people in a social network complains, they have immediate influence over a large group of people," he said. "So even if people aren't experiencing the same problem, the negative comments have planted a seed."

Gilman said that the power of social networks has changed the game for companies who find themselves the target of negative customer sentiment.

"The world has changed over the past couple of years," he said. "A few years ago you might have been able to ignore some customer complaints and get away with it. But not anymore. With social media things spiral out of control very quickly. "

He cited the example of how Johnson & Johnson was forced last year to pull an online advertisement for its over-the-counter pain pill Motrin after it triggered protest on the Internet from consumers who thought an ad that depicted mothers with back pain carrying babies in a sling as being insensitive toward mothers. Angry consumers viewing the ads took to blogs, YouTube and Twitter to call for people to boycott Motrin, arguing the ad trivialized women's pain and the method of carrying babies.

Switchers as "satisfaction saboteurs"
Experts have said that AT&T's image problems likely go beyond its network troubles. Helmreich said that AT&T has invited trouble through its exclusive deal to carry the iPhone. About 40 percent of iPhone users dropped their carrier to get the iPhone. These customers weren't switching carriers because they wanted to be on AT&T's network; they wanted the iPhone. As a result, Helmreich argues that these customers are more likely to be dissatisfied with AT&T's service. And they are more likely to complain and to share their complaints with friends.

Helmreich points out that people with one of T-Mobile's exclusive Google Android phones or Sprint's Palm Pre are also more likely to be dissatisfied with their service if they switched providers for those phones.

"In effect, switchers can be satisfaction saboteurs if they were not already inclined to choose AT&T," he said.

"It seems crazy to me that AT&T hasn't done anything to throw customers a bone to say, 'We love you as a customer."
--Rob Adler, vice president, Vantage Communications

Adler also points out that AT&T's marketing and public relations strategy for the iPhone also helped create animosity toward the company. He said that from the start, Apple has established itself as the more valuable brand in the relationship with an iPhone customer. Even though AT&T is making the device more affordable by subsidizing each device by at least $300 to $400 a pop, it doesn't highlight this fact to consumers. But Apple is the company that has designed the device. It sells it for $200. And it also offers the cool applications, which are either free or are relatively low cost.

"iPhone users love Apple," Adler said. "They are loyal to the brand and they love the device and all the great applications. All they associate AT&T with is dropped calls, a hard-to-access 3G network, and high network fees. They even make iPhone users pay extra for SMS. It seems crazy to me that AT&T hasn't done anything to throw customers a bone to say, 'We love you as a customer.'"

Adler said that AT&T's exclusivity deal with Apple is a gift, which AT&T should be taking advantage of to create customer loyalty. He said that AT&T likely has plenty of time to redeem itself, but the company must take steps now.

He suggested it does three things: for one, he said that AT&T must admit its network has problems and then fix those problems. The challenge from a marketing standpoint is convincing its customers that the network has been fixed. And to do that, brand expert Gilman suggests that the company use specific examples.

"Once they fix whatever problems they have, they have to get testimonials to back up those claims," he said. "Maybe they could drive through neighborhoods and show people that calls aren't dropping and that the dead zones don't exist anymore."

The second thing AT&T needs to do is to more overtly market and explain its value to the consumer.

"AT&T needs to be more aggressive in promoting what they offer the customer," he said. "All they do is say they have the fastest 3G network, which everyone who owns an iPhone knows is absolutely not true in the real world. It may be true in a lab, but not on the street."

And the third thing AT&T must do is make goodwill gestures to its loyal iPhone customers. Gilman suggests the company give out coupons or anything that shows how AT&T values its customers. Adler thinks that AT&T needs to offer customers, who are already spending a lot of money on their service, more features and services for free. But he said that free Wi-Fi at AT&T hot spots is likely not enough of a perk, since it only highlights deficiencies in the 3G network. Instead, he thinks that AT&T could offer free SMS to iPhone users renewing their contracts.

"Customers remember small gestures like that," he said. "And they tell their friends."

 

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