Wednesday, January 27, 2010

AT&T's Early Termination Scams Are Catching Up With It

Early termination fees are a poisonous drug that the big telecoms, and AT&T in particular, are addicted to. AT&T tried to quietly settle one lawsuit involving them while the FCC is investigating the issue:

While I'm sure that there are AT&T execs that enjoy the idea of customers having to pay to escape poor service, long term these kinds of contracts are bad for business. It creates incentives for AT&T to offer deals it can't really live up to (like getting more iPhone subscribers than it's cell towers can handle) and provides profits for failure when customers exit unhappily. Long term, failure isn't a good business model.

Does AT&T really want it's future to be tied to scams? Is it really unable to complete by trying to offer the best possible service? Does it really want to train a generation of cell phone customers to be wary of being ripped off?

One of the biggest growth areas in telecom has been "no contract" cell phones. This is a direct result of ETF scams. These kinds of "no contract" deals are really putting downward pressure on monthly service charges. AT&T has been forced to respond with it's own "no contract" deals with the "GoPhone." But despite AT&T's marketing muscle, profits from the GoPhone have not been amazing and AT&T's hopes that many customers would shift into full monthly contracts have not been happening.

Customers can tell the difference between reasonable ETF fees (especially for discounted phones) and unreasonable ones. Outrageous termination fees are going to create a customer base with little or no loyalty to brands, who will simply see phones as disposable devices that should be acquired and tossed based on whoever is offering the lowest rates.

AT&T is at a cross roads now that it will be losing iPhone exclusivity. Provide real service, build a real brand with a loyal customer base, or complete simply on the lowest prices. What kind of business do they want to be in? Do they want to be Chevy or Mercedes or Yugo? For several years, they didn't have to choose. They were charging high rates to iPhone users and making huge profits with marginal service. They also ran after the low price market with GoPhones.

Without the iPhone, or anything new to make up the difference, they will have to make a choice or see their profits fall apart over the next decade.

UPDATE - POST IPAD ANNOUNCEMENT: Did AT&T want to bury this settlement announcement prior to the "no-contract" deals Apple forced it to take for the iPad?

No comments:

Post a Comment