Plenty's At Stake For AT&T

by Karlene Lukovitz, Jun 25, 2007, 5:01 AM

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Dealing simultaneously with one of the most anticipated consumer electronics launches in history and a critically important rebranding is a big order. For all its size and marketing prowess, AT&T could find it's bitten off more than it can chew, says Michael Megalli, partner in Group 1066, a marketing and product development consulting firm.

"AT&T is obviously at a critical juncture, not only with its brand, but with its business," he says. The company has an intertwined iPhone partnership with Apple. It's in the midst of rebranding from Cingular to AT&T. It's embarked on an ambitious multiplatform strategy. "The question is," he says, "are they trying to do too much at the same time? And the answer is probably yes."

AT&T accelerated its marketing and other Cingular-to-AT&T Wireless rebranding efforts precisely to support the iPhone, pinning its strategy for competing with Verizon and Sprint on its status as iPhone's exclusive wireless carrier and dominant retailer. (AT&T has more than 60 million wireless service customers, but its once-5-million lead over Verizon has dwindled to about 1.5 million.)

The wisdom of dropping the Cingular name remains to be seen, Megalli points out.

The Cingular rebranding reflects AT&T's broader plan to take on cable companies and others in the communications and entertainment delivery space, but it seems doubtful they would have moved so aggressively on this if not for the iPhone.

"It was a bold and decisive move," he says, "but only time will tell if it was the right one."

AT&T is an iconic brand, and will have the advantage of being able to reach consumers through computers, mobile phones and TV's. However, Megalli believes that the brand strength -- at least in terms of consumer awareness and understanding of its products -- has been diluted by its growing diversity and complicated history.

"I'd be very surprised if Cingular did not have greater strength in terms of product awareness and respect for the brand," he says.

Apple undoubtedly trumps both brands, Megalli says, and the iPhone partnership may well prove beneficial to AT&T's plan to make billions over the next five years through multiplatform advertising deals, as well as consumer subscriber revenue.

"Still, while Apple has seemed infallible for the last several years, the success of iPhone 1.0 is in no way guaranteed," he notes. "They're betting the farm on the iPhone. Even when it's an Apple product, it's risky to stake so much on one product. Plus, there are big questions that only AT&T and Apple know the answers to, starting with how long AT&T retains its iPhone exclusivity rights."

AT&T's most ambitious and critical new offering, U-verse, is still rolling out and has very little recognition at present -- in fact, it's rarely if ever mentioned amid the massive media coverage of AT&T that's come with the iPhone, Megalli points out.

U-verse, offering a portfolio of Internet Protocol-based services including television and digital video, AT&T Yahoo! high-speed Internet access, and eventually voice telephone service, is being delivered over AT&T's expanded fiber network. AT&T expects to reach nearly 18 million households as part of the initial deployment, which runs through 2008.

Megalli wonders, however, if AT&T could be underestimating the difficulty of today's telecommunications and media marketplace.

"Wireless telephony is a highly commoditized offering," he says. "And they're not only going up against the cable companies and their 'triple-play' offerings, but players like Verizon, which has already spent billions and made something of a splash with its FiOS system. As services once sold separately increasingly go through the same pipeline, the market essentially shrinks."

Further, he adds, AT&T's bundling and marketing strategy are unclear.

"AT&T has a very impressive record of marketing," including their contribution to the original branding of Cingular and the brilliant move to make Cingular the voting platform for "American Idol," Megalli stresses. "But today's marketplace is very different. They're trying to pull off big tricks in a very difficult and competitive arena."

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