Fresh from closing the BellSouth deal, the biggest U.S. telecom provider is beginning to show why size matters in telecom
AT&T plans to send a new message. A number of TV ads starting this weekend will show people placing calls to friends across the country—for no charge. The tagline: "Call 100 million AT&T customers for free."
The AT&T Unity plan, which provides for unlimited calling among AT&T's wireless and landline customers, is unprecedented, analysts say. "This is the first time in the U.S. that we have a community across both fixed and mobile phone service," says Mark Winther, an analyst with consultancy IDC (IDC).
Crushing the Competition
It's also AT&T's way of thumbing its nose at smaller rivals that are slimming down even as AT&T becomes the biggest U.S. phone company through the acquisition of BellSouth (see BusinessWeek.com, 12/22/06, "AT&T-BellSouth Nearing FCC Approval"). "There's no way some of [our competitors] can respond," says Ralph de la Vega, group president of regional wireless operations at AT&T.
He has a point. AT&T already had a local and long-distance phone business and by acquiring BellSouth it gained full ownership of Cingular Wireless, the biggest U.S. mobile phone company. That's being rebranded as AT&T. Verizon (VZ), the No. 2 U.S. telco, has only 55% ownership of Verizon Wireless and is shedding local lines in rural areas (see BusinessWeek.com, 1/17/07, "Verizon's Spin-off Offensive").
Sprint Nextel (S) spun off its landline business, Embarq (EQ), in 2006. And cable companies like Comcast (CMCSA) are quickly trying to encroach on telecom turf by offering phone and high-speed Internet services. They're also scrambling to provide mobile phone services in partnership with Sprint, but the cable providers lack their own wireless networks (see BusinessWeek.com, 11/3/05, "Sprint Nextel's Watershed Deal").
Focusing on the Community
Now that the merger with BellSouth merger is complete, the new AT&T may be trying to change the basis of rivalry in telecom. Providers have long competed on which can offer the biggest bundle of services such as wireless, landline, and TV. Now the competition may shift to who can offer free access to the largest community of users. "Before, it was about, 'My bundle of services is bigger than yours,' " says Winther. "Now, they will say, 'My community is bigger than yours.' "
AT&T may have the biggest community, but it's not the only carrier blurring the lines between its landline and wireless customers. Verizon has been testing a service called Verizon Complete Freedom in Texas and Florida that allows for free calls between a single user's home and wireless phones, and offers a combined voicemail and a single bill. "We are very gratified by the performance of the bundles in Florida and Texas," a Verizon spokesperson says. Still, Verizon has yet to provide all-you-can-eat calling amid different landline and cellular customers.
And while AT&T will plug the plan by calling it "free," AT&T Unity could actually cost more for some users. To get Unity, a subscriber has to have a wireless plan costing at least $59.99 a month. That's well above the industry average of near $50 and higher than Cingular's cheapest plan, which costs $39.99. Subscribers will also need a landline calling plan that includes unlimited long distance. All told, users will be paying north of $109 a month. "There are certainly cheaper wireless programs around," Winther says. "And consumers are used to getting discounts when they bundle things. This is pretty expensive."
Just the Beginning
Even if it does cost more, some users may still switch—if for no other reason, than to get all their calls on a single bill. About half of AT&T's 58 million wireless subscribers live in the 22 states where AT&T operates a wireline business, Winther says. He estimates about 20% to 30% of those users already use the company's landline service and might want to move to Unity.
And this is just the beginning of the community-building AT&T has in mind. In the future, the company might combine its broadband, video, and Web-calling users into new communities. It could extend Unity to customers who subscribe to AT&T CallVantage, a Web-calling service, for example. "Customers that are part of the AT&T family will feel lots of benefits," de la Vega says. He wouldn't elaborate on what the company's future offerings might look like.
Winther doesn't rule out the possibility that at some stage, telecom service providers will also want to take these communities to the next level, introducing more social networking features—and competing with Web-based and mobile social networks like News Corp.'s (NWS) MySpace.com.