On July 9, the Redmond, Wash.-headquartered wireless division will spin off from its mothership into an independent company, and a decision on an ad agency of record for its $400 million account will come in early July.
AT&T Wireless is the No. 3 provider of nationwide wireless service, with 16 million customers, after No. 1 Verizon Wireless and No. 2 Cingular Wireless. But without the shelter of the AT&T Corp. umbrella, the new company is likely to face a host of challenges in the complex and quickly changing wireless marketplace.
While Cingular and Verizon are in the process of creating new brands post-mega-merger, AT&T Wireless is in the unique position of being able to burnish the heritage of the AT&T brand, while still creating something new. "It's time for a brand new coat of paint on the old house ... this is a new company that could sizzle," said Jeffrey Kagan, an independent telecom analyst, referring to the opportunity that the winning ad agency and in-house brand team have to reinvent the wireless category. "Choosing an advertising agency is one of the most important decisions that they'll be making. AT&T Wireless is a strong brand but it's going to become a new company and will start fresh with a clean slate," Mr. Kagan continued. "They have a second chance to make a first impression."
Top executives, including Chairman-CEO John Zeglis and the agency search committee met June 29 at one of the company's East Coast offices to hear the three agency finalists summarize their pitches, capping a several months-long process. The finalists are: Interpublic Group of Cos.' FCB Worldwide, New York, Omnicom Group's TBWA/Chiat/Day, Playa del Rey, Calif., and WPP Group's Ogilvy & Mather Worldwide, New York. Meanwhile, FCB, New York, AT&T Wireless' current agency, is preparing a series of ads trumpeting the company's spinoff, timed to hit daily newspapers July 9. FCB is defending the account after AT&T Wireless separated from the agency's San Francisco office earlier this year. The stakes for FCB, widely perceived as the dark horse, couldn't be higher, even as it plows ahead with new campaigns.
One of the new company's challenges will be to differentiate AT&T Wireless from leaders Verizon and Cingular. AT&T Wireless is expected to have an edge in targeting business customers and youth.
However, AT&T Wireless faces technology hurdles. Its network is based on a technology known as TDMA, viewed as a clunkier platform to launch next-generation wireless services. Cingular and Verizon use a technology called CDMA that facilitates the transition to next-generation wireless services or so-called 2.5 and 3G services more smoothly.
"Their obvious challenge is going to be the progress of next generation technologies, [with TDMA] they'll take longer and be more expensive," said Knox Bricken, analyst with Yankee Group, a telecommunications consultancy. To support its future services, AT&T has said it will build a global network on a robust platform used widely in Europe and Japan known as GSM. Last November, AT&T received a $9.8 billion cash infusion from NTT DoCoMo, a Japanese telecom giant, to help kick-start its efforts. The GSM platform used overseas, if brought to the U.S., could eventually give AT&T Wireless an advantage as it is better able to support services such as instant- messaging and wireless Internet functions.
"The problem is it's going to [end up being] more expensive per customer," Ms. Bricken said of the services next-generation technology will enable.
Mr. Kagan, the independent telecom analyst, agreed, adding that AT&T's network needs some buffing up. "It's a patchwork quilt of technologies and standards, they've got a nationwide network and good people, but they want to be a big player in the wireless Internet and their PocketNet service is not as robust as PalmNet or [Research In Motion's] Blackberry."
AT&T's strengths, according to Ms. Bricken, lie in a core high-end business users who consume wireless services outside of work. AT&T Wireless rakes in on average $66 per month from business consumers who make up about 60% of its customer base. The company may also become the spoiler in targeting diverse user segments, including the youth market and the prepaid wireless calling markets. Indeed, highly targeted marketing campaigns may be AT&T Wireless' secret weapons in the face of Cingular and Verizon, both of which both have gone broad in their approaches.