The Beginning of the End at AT&T

In an incredible announcement, AT&T declared that it will be raising its termination fee for iPhones and a few other devices from $175 to $325.  The company offers some explanatory chatter about handset subsidies, but the real message it’s sending is that it’s simply done trying to win over customers.  Rather than keeping us the old fashioned way, by creating and sustaining real value, AT&T is now just charging us a ransom to leave.  Imagine an AT&T that was truly confident in its ability to serve? How would it behave in the marketplace?  It would invite customers to stay only as long as we’re satisfied — and not a cell-phone minute longer.

I find this decision scandalous, particularly since I’m already a frustrated AT&T customer (I can barely make it through a phone call without it being dropped).  When a company moves towards trapping customers, the clock starts ticking on its ability to serve them.  Penalties for ending the relationship create sharp antagonism with customers — antagonism that’s disproportionately felt by front-line workers — and signals to the entire organization to forget about excellence.

This toxic combination ensures mediocrity and accelerates a company’s decline.  I get it.  Winning the cell phone game is hard, and the people behind the idea likely had the best interests of the company in mind.  But when you broadcast that you can’t convince customers to voluntarily stick around, everyone hears you loud and clear, including your employees.  Who would keep trying in a culture like this?

Sigh.  This is a sad day for AT&T.

5 Responses to The Beginning of the End at AT&T

  1. Craig Safir says:

    Interestingly, since the iPhone launch, ATT stock is down 17% while Apple has rocketed. That said, most telecom is down over that time. My guess is that even with all the irate ATT customers (who can’t switch), ATT would have been down even further without the iPhone margin (whatever’s left after subsidies to Apple).

    What I think is more apparent is that ATT waited too long to better align pricing with data consumption/transmission. An article in yesterday’s WSJ suggests that ATT’s move away from an all you can consume model may buttress the broader telecom sector. While this model makes more sense and should ease traffic while improving network performance, the sector needs to start taking care of customers better.

  2. Steve says:

    I have a current first-hand experience with ATT’s complete disregard for customer service. ATT accidentally disconnected my DSL service. No repair was required, all they needed to do was just turn the line back on.

    Due to antiquated batch processed systems and customer service agent tools that leave much to be desired, it took them 5 full days, to do what should have been accomplished in a few mouse-clicks.

    Even worse, I escalated the issue to the “ERT” which handles complaints to senior management, and that elite team committed to activiting service two days after my service was already back and running!

  3. KJ says:

    Thanks for your article. Verizon has a $350 early termination fee for 2 year sign-up with its Droid X, and perhaps other smart phones. I was just about to sign up with them but was brought up short by this. I’ll pay full price for a smart phone before I enter into this kind of binding arrangement with a cell phone carrier.

    As another reader mentioned, this all has to do with fancy prestidigitation to hide the real costs of products and services to meet consumers’ fantastically unrealistic price points for these sophisticated devices and services.

    A better business model would be “you get what you paid for,” or if you don’t, you can vote with your feet and go somewhere where you will.

    Apple had a hand in AT&T’s disaster, as a recent article in Wired shows.

  4. BE says:

    Heh. AT&T’s demise couldn’t come soon enough. I spent hours in call-center queues trying to terminate my landline. It seems that when you say “terminate”, you are put on indefinite hold.

    HBS’ competetiveness project should take a close look at all these companies that hide from and lie to their customers. The fact that they can continue to exist and pay huge salaries to their “leadership” really says something about the state of US competetiveness.

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