Friday, April 23, 2004

"AT&T Wireless Self-Destructs"

It's worth reading through this account of how an attempt to upgrade call centers at AT&T resulted in terrible systems crashes that, according to the article, lead to the business going belly-up and being bought by Cingular. It is particularly relevant to me because right now I'm at Sprint working on a project that is much more ambitious than what AT&TW was trying to do.

Since the article appears in "CIO", it unsurprisingly links the failure of this large IT project with the overall failure of the company, but I think that is only a small part of the story. The truth is that large IT projects are very complex for everyone, and they fail more often than they succeed. AT&TW was vulnerable (the "marginal firm" in the market) for reasons that had nothing to do with the good/bad planning as call center reps moved from System X to system X+1.

At its heart is the fact that the US probably has more cellular companies than it needs. As the market for cell phones saturates, the new customers signing up are of lower and lower quality (they buy smaller plans, they are more likely to not pay). The competition at the margin for this low quality customer means that the price companies can charge per minute is going down, so they are extracting less rent from their better customers. But all these businesses have large fixed cost (their networks) so it makes sense to stay in business adding lousy subscribers because, on the margin, you are still coming out ahead.

Until you stop coming out ahead, at least. In markets, the price is set by the least efficient producer (the firm at the margin), which in this case seemed to be AT&TW. The operational hit they took from the CRM problems was the last straw, but the structural problems they struggled with were there before (too many firms, too much price competition, expensive, high-cost legacy technology). I think the US cellular market remains crowded, and locked in fierce price competition. Look for the emergence of low-cost service provision with simple, flat-rate, all-you-can eat plans.


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