AT&T’s New Stance After iPhone Exclusivity

For over 3  ½ years AT&T was the sole mobile phone network to carry the most iconic phone in the history of mobile phones, the iPhone.

All of that has now changed as Verizon executives have officially announced that they will begin carrying the iPhone 4 on their CDMA network. A quick visit to Verizon’s website revealed a huge banner featuring the iPhone 4 with the copy reading “iPhone 4. Verizon. It begins.” Sales start 2.10.11.

The move has been rumored for months and AT&T has spent millions of dollars during this time to beef up its network and tout other smart phones like the Blackberry Torch from mobile phone manufacturer RIM, as well as other phones based on Android and Windows mobile operating systems. In addition, AT&T pushed early upgrades in an effort to lock those craving an iPhone 4 into 2-year contracts. Smart, but short-term.

What is AT&T going to do in the long run?

I can’t imagine that AT&T executives are very surprised by this news. Aside from all the rumors and leaks, AT&T has been plagued by a network that,

in some urban markets, is only 50% reliable. Last year Consumer Reports ranked AT&T last in network quality for major carriers. I personally own an iPhone and purposely used an old iPhone 3G that my sister used to use so that I did not have to sign a 2-year deal with AT&T – just in case the network was unbearably unreliable. So far, it hadn’t been too bad – and I came over from Verizon.

I represent a small minority as 86% of current iPhone users are under contract. That is about 16 million people or 24% of AT&T’s total wireless subscriber portfolio.

AT&T is meeting the news with bravado, big talk. Ralph de la Vega, AT&T Wireless chief executive, is quoted on saying, “We are ready for it. The short and long-term viability of AT&T will be good whether we have exclusivity or not.” Perhaps he meant AT&T as a whole, a $123B provider of nearly all communication technologies (2X the yearly revenue of Verizon), not specifically AT&T Wireless.

The answer is re-positioning

Although I have harped on price positioning in the recent past in regards to retail, I think that may be AT&T Wireless’ only option at this point. They are not a quality leader, Verizon is, and they are no longer the device leader, everyone in the industry has great phones. I switched to AT&T because I was tired of paying Verizon over $110/mo for a family plan with only 2 non-smart phones, no rollover, and not internet. I felt like I was paying out through the nose to have Medieval technology in my pocket.

My prediction is that AT&T will, over the next several months, spend hundreds of millions of dollars trying to re-position itself through targeted integrated marketing campaigns aimed at acquiring new customers and retaining iPhone subscribers based on the proposition of value. I personally feel that they will attempt to re-position as a value leader or complete business solutions provider (VoIP, mobile phones, and Wi-Fi). In addition I think that operationally they will spend hundreds of millions improving their network- though I do not think they will ever, nor should they try, to reach the level of reliability enjoyed by Verizon users. I also do not think that they should attempt to “replace” the iPhone with another wannabe (remember Verizon and the Blackberry Storm). It would be a waste of money.

Good luck AT&T, you stand a good chance at losing a big percentage of your iPhone users- a segment that represents a quarter of your contracts and even more of your revenue.