Industry Voices — Greenblatt: AT&T balances customer satisfaction with pressures
AT&T enters 2020 with a bold new transformative vision that will require carefully synchronizing its go-to-market strategies to capture and retain subscribers. Success will hinge on an enterprise-wide focus on nurturing the sustained culture of long-term customer satisfaction.
This is no small task for a complex organization like AT&T, especially considering recent attention from activist investor Elliot Management to accelerate the plans already in place to lower debt, focus on its wireless business and refine the video offerings, on top of the rapidly changing industry dynamics arrayed against the status quo.
Such intricacy has evolved lock-step with the communications industry through generations of technological innovation, disruptive challengers and changing consumer attitudes. AT&T has navigated the choppy waters from its initial incarnation in 1885, through multiple iterations including its breakup in 1982, to the modern day version based on SBC. As a result, when AT&T competes for consumers in the decade ahead, it jousts with current players but also wrestles with the consequences of myriad battles it won decades ago.
Dealing with Disrupters
While important, a renewed focus on customer satisfaction alone will not succeed without AT&T contemplating the complexity of its business. At its core, customer satisfaction is about providing the right people with the right offering at the right time and right price. According to recent findings in the J.D. Power 2019 U.S. Wireless Total Ownership Experience Study - Volume 2, this complexity has served AT&T well. AT&T customers are most happy when they bundle three services with their wireless (ISP, TV, and home phone). And AT&T customers are also happy when they jump from two to three services. When a subscriber can simplify by getting their desired services from one vendor and get a triple play discount, satisfaction increases dramatically. AT&T remains a blue-chip stock because it has managed this dynamic exceptionally well for as long as bundled services have been available.
But change is a constant. Recent years have seen monumental shifts in the content development and distribution sectors. Much of the focus has been about incumbent efforts to recapture consumers as they embraced new technologies and engaged in new behaviors. For companies like AT&T, this has been epitomized by the “cord cutters” who have enthusiastically embraced the new over-the-top (OTT) services and disrupted important revenue streams for network service providers in general.
To its credit, however, AT&T joined other major brands in disrupting the disruptors with its compelling introduction of HBO Max into the competitive streaming space. There is both critical and commercial appeal to the new offering. Consumers appreciate this entrance, demonstrating that AT&T knows how to respond to market shifts in an agile manner and indicating desperately needed agility. Others in the space often have an easier time with such changes due to their smaller relative size or head-start on CX-focused initiatives, for example.
Rebalancing the Legacy Customer/Offer Mix
A key component of the balancing act, however, revolves around serving the hundreds of thousands of customers perfectly happy with what they have had for years -- especially as the economics of content development and delivery shift.
Currently, almost a half million subscribers to AT&T’s set-top box-based services are receiving services at unsustainable prices, providing an opportunity to transition the bulk of these subscribers from legacy offerings to the new more profitable streaming platforms.
Easier said than done, no doubt. But note that the roughly half a million lower ARPU (average revenue per unit) subscribers are behind in priority to the nearly 1.3 million (almost 20k/day) traditional pay-TV subscribers that departed from DIRECTV, U-verse TV, and AT&T TV NOW in Q3 2019. Thankfully, there is every reason to believe that AT&T can rebuild relationships with these customers, given its technology, library content, distribution agreements, tremendous institutional knowledge, and executive fortitude needed to excel at selling high-quality video services to the public.
On the technology front, AT&T possesses the necessary fiber infrastructure to deliver broadband access services to meet soaring demand from connected homes across the country. Of critical importance, AT&T continues its customer growth here, adding nearly 120,000 new high gross-margin subs for Internet service (typically a 90%+ business at scale) during the same time period. It is also well-positioned to leverage 5G fixed wireless access (FWA) to address markets – mostly in sparsely populated areas – currently serviced via satellite.
The story is also healthy on the content side of the equation, thanks to the creation and integration of Warner Media, giving AT&T intellectual property control over a significant share of the most critically acclaimed video libraries in the world.
All that remains is to combine the interdisciplinary teams and execution strategies to engage with customers so that most subscribers feel satisfied with the transition, whether to traditional services, AT&T TV/HBO Max, or a combination of newer streaming services riding the broadband access provided by AT&T. Each choice maintains a relationship with the customer and an attractive revenue stream.
Historically, AT&T’s customer service performance has been stellar, with the firm winning 146 national and regional J.D. Power awards since 1995, including recent back-to-back-to-back wins for its Cricket brand. Although the current scale of the organization presents a challenge heretofore unforeseen in the telecom industry, the test will be if AT&T is willing to invest in the transition back to its peak levels of performance for customer satisfaction given its recent focus on debt reduction. While excelling in many ways, whether serving large enterprise business wireless customers or residential internet customers, enduring excellence will be difficult in this dynamic industry. Observing the progress of this transformation will be among the most interesting storylines of 2020 and a definitional stage in the rich history (and future) of this American communications icon.
Ian Greenblatt leads J.D. Power’s Technology, Media and Telecommunications Intelligence, including a new IoT sub-practice, and drives market strategy across the rapidly converging landscape, which encompasses the entire communication sector. You can reach him by email at [email protected] and follow him on Twitter at @GreenblattTMT.