• Business Week, Friday, February 5, 2010 9:55 AM

Roben Farzad takes a long look at how AT&T may have blown a golden opportunity as the exclusive network provider for Apple's iPhone in the U.S. by underestimating the device's appeal and under-delivering on network capacity. Marketing disaster that it may be, however, the company announced last week that its fourth-quarter profit had risen 26% from 2008 and that it had added 7.3 million wireless customers last year, equaling its best-ever year.

In fact, Farzad writes, AT&T is "in some respects a remarkable turnaround story" with nearly 300,000 employees and annual sales of $124 billion. It is attempting a delicate balancing act between profitability and customer satisfaction. Upgrading its wireless network sufficiently to please the data-driven masses could halve its profit per customer, according to one estimate, or even eliminate it altogether.

But AT&T ignores the swelling ranks of the disaffected -- from bloggers to wisecracking comics to everyday folk like college freshman John Rust, who has formed a group called the Three Musketeers with the sole purpose of pestering AT&T -- at the risk of permanently alienating its customer. "I'm not aware of any company in this country that has had so aloof a stance toward quality of service," says Rich Doherty of The Envisioneering Group, a telecom market research firm.

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