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Micro-Sell: Why AT&T Shouldn’t Try to Make Any Money with its Service Extension Device

April 1, 2010

Marketing.fm, Technology

This is a guest post from my friend Adam_Sigel

After over a year of market testing and vague promises, AT&T has finally announced the availability of its 3G microcell device, which essentially lets you put a localized cell tower in your home if you’ve got bad service. I live in a ground level condo and use an iPhone, so I’ve been following the news on this device since it was first announced. At this point, I’m more than willing to pay a one-time fee to guarantee myself full 3G coverage in my home. However, I agree with the idea proposed in a recent TechCrunch post: AT&T should give these microcells away.

If you go back and re-read the last two sentences, it’s perfectly obvious that AT&T is in no way required to give these devices out for free.

See, it’s a win-win. It just needs to be a free option in the areas where you are currently failing.

I have already expressed my willingness to pay $150, because my alternative–a Skype wifi phone and a Skype number–involves two things I’d prefer to avoid: multiple phone numbers, and a new recurring cost. However, I think it suits AT&T’s broader, long-term plan to heavily subsidize these devices or give them away to customers conditionally. Here’s why:

(1) I haven’t done this personally, but I’d bet that if you check AT&T’s financial statements with the SEC, there isn’t a line item for one-time revenue from supplementary devices, and if there is, it’s negligible in size. AT&T’s two key metrics for revenue are subscribers, and revenue per subscriber. Bring in more people, and then upsell them on more expensive service plans. That’s the game. If I didn’t have to spend $150 next month on a microcell, that’s money I could conceivably reallocate to adding minutes to my plan on a monthly basis (minutes used within the microcell range still count against your plan). Let me be perfectly clear: I would use my cell phone in my home more frequently if I had a full signal provided by a microcell. Going one step further, $150 kept in my pocket could be used for what I expect to be an exorbitant monthly fee for tethering, a feature currently prohibited on U.S. iPhones because AT&T isn’t ready to handle the data. Free microcells increase the likelihood of users increasing their monthly plans.

(2) AT&T has an image problem right now, and they could use some positive PR. I don’t know how much AT&T is paying Luke WIlson to toss postcards all over a giant Where In the World is Carmen Sandiego map, but I’ll bet it’d be cheaper to hand out a free microcell to every AT&T customer with an unlimited data plan–and you’d get a better return on your investment. I can even guarantee it: Give away the microcell in exchange for a re-up of a two-year contract. Assuming a modest $75 plan ($40 for minutes, $30 for data, $5 for SMS), that’s a $150 investment for $1800 in recurring revenue per customer, and most plans are likely north of that. I really like my iPhone; the worst part about it is AT&T. With recent rumors that AT&T’s U.S. monopoly may end sooner than later, AT&T should be doing what it can to ensure that people don’t jump ship because I assure you: every single iPhone customer is loyal to the device, not the carrier. A free microcell in exchange for a contract renewal improves customer satisfaction and essentially forces customer loyalty.

(3) By its own admission, AT&T’s 3G network is struggling to meet demand, largely because just 3% of users are consuming 40% of the network bandwidth. It’s reasonable to assume that this 3% is largely comprised of iPhone and other “superphone” users. If they had microcells in their homes, that might alleviate some of the heavier traffic across the network. And in the two cities with notoriously poor coverage–San Francisco and New York–enough microcells might actually create a supplemental blanket of coverage in parts of the city. It benefits AT&T’s entire network to have distributed as many microcells as possible. What’s more, 3G has already been earmarked for replacement by LTE and 4G technologies. It took AT&T so long to roll out its microcells (it technically hasn’t even happened yet) that it could face some customer backlash in a few months when buyers find out they paid $150 for “old” network technology.

There is more than one way to extract value from a device than simply selling it. Even though customers like me are ready to line up with credit cards in hand, it makes more sense for AT&T to give them away in the hopes of building customer loyalty and increasing its revenue per subscriber.

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