To keep its uneasy equilibrium, AT&T is trying a little of everything: It's marginally increasing capacity while trying to squeeze network hogs and subtly reshape the definition of Net Neutrality.
Blowing kisses
So far the gambit has paid off. On Jan. 28, AT&T said its fourth-quarter profit had risen 26% from 2008 and that it had added 7.3 million wireless customers in 2009, equaling its most ever in a single year. What's more, Apple hasn't lost faith; when it unveiled its iPad tablet PC in January, it said it had given AT&T the exclusive right to provide data service. But this time Apple has stipulated that AT&T can't lock customers into service contracts for the iPad, making it easier for them to bail if another carrier starts offering service.
So far the gambit has paid off. On Jan. 28, AT&T said its fourth-quarter profit had risen 26% from 2008 and that it had added 7.3 million wireless customers in 2009, equaling its most ever in a single year. What's more, Apple hasn't lost faith; when it unveiled its iPad tablet PC in January, it said it had given AT&T the exclusive right to provide data service. But this time Apple has stipulated that AT&T can't lock customers into service contracts for the iPad, making it easier for them to bail if another carrier starts offering service.
That's where rival Verizon comes in. The New York-based carrier has been blowing kisses to iPhone users for months, signaling that it's ready to serve them as soon as Apple wants to make a deal. Verizon is already racing ahead of AT&T in upgrading its slow copper wires to fast fiber-optic lines that carry FiOS, its bundle of telephone, Internet, and television services. By contrast, AT&T's competing U-Verse service, which runs over a patchwork of fiber-optic and copper wires, has gained little traction. The iPhone was supposed to be the great equalizer for AT&T, but since the launch in 2007, AT&T's stock has underperformed Verizon's by 12 percentage points and the Standard & Poor's 500-stock index by six.
For AT&T CEO Randall Stephenson, managing one division for growth and another for costs is "a delicate and very tricky balance," says Zhiping Zhao, a telecom specialist with New York-based research firm CreditSights. "And if AT&T doesn't find that balance, it doesn't grow." Adds Gerard Hallaren, director of research at TownHall Investment Research in Littleton, Colo.: "It's a juggling act."
AT&T says the usage issue is broader than one company. "I don't think there's been any significant shift in consumer technology that hasn't come with growing pains," says Stankey. "Think back to America Online and busy signals. It's not that these problems can't be solved—it's that mobile is a different game."
Ma Bell is back
Today's AT&T, with nearly 300,000 employees and annual sales of $124 billion, is in some respects a remarkable turnaround story. After the historic dissolution of Ma Bell in 1984, Southwestern Bell (SBC), one of the seven regional Bells created after the breakup, spent a quarter century reassembling broken-off pieces under the stewardship of deal-happy CEO Ed Whitacre (now chief executive of General Motors). By 2006, having rolled up four of the original Bells and the remains of AT&T proper, SBC rechristened itself AT&T and returned to using the iconic stock symbol T (for telephone).
Today's AT&T, with nearly 300,000 employees and annual sales of $124 billion, is in some respects a remarkable turnaround story. After the historic dissolution of Ma Bell in 1984, Southwestern Bell (SBC), one of the seven regional Bells created after the breakup, spent a quarter century reassembling broken-off pieces under the stewardship of deal-happy CEO Ed Whitacre (now chief executive of General Motors). By 2006, having rolled up four of the original Bells and the remains of AT&T proper, SBC rechristened itself AT&T and returned to using the iconic stock symbol T (for telephone).
Ma Bell was back. Then came the iPhone and its array of network-sapping apps. Wireless profits soared, but at a cost. In December AT&T Wireless said 1% of smartphone customers accounted for 20% of the data drain on its network, while its top 3% were using up 40%. Several recent surveys, including those by Consumer Reports and research firm Yankee Group, have placed AT&T last in customer satisfaction among major carriers.
When AT&T suggested in December that some customers were using too much bandwidth, it failed to anticipate the backlash that would follow. Business schools are littered with case studies of companies that have paid the price for insensitivity to customers' wishes. (New Coke, anyone?) The perils have only increased in an era when it's easy to make complaints heard globally.