AT&T's image problem

The approval process for its proposed acquisition of T-Mobile USA (NYSE:DT) is just getting started, but AT&T (NYSE:T) is already facing a customer relations problem. According to the America n Consumer Satisfaction Index (ACSI), customer perceptions of AT&T and T-Mobile took a sharp dip in the first quarter, at the end of which AT&T announced its plans to buy its smaller competitor for $39 billion (CP: AT&T: T-Mobile deal would produce bigger, better operator).

After big mergers or acquisitions, operators almost always experience a decline in customer satisfaction as integration issues take their toll and customers from the acquired carrier are moved onto the new operator’s service plans and devices. For instance, Sprint (NYSE:S) saw its ACSI rating fall from 63 in Q1 of 2006—the first full quarter after its acquisition of Nextel—to 61 a year later to a bottom in Q1 of 2008 of 56. ACSI only started tracking mobile operators in 2004 after the then Cingular bought AT&T Wireless, but in Q1 of 2005 AT&T’s ratings were the lowest in the industry, but started improving substantially over the next few years as customer and network integration issues receded.

But both AT&T and T-Mobiles’ ACSI rating dropped 3 points over the last year, to 66 for AT&T and to 70 for T-Mobile. Customer perceptions of AT&T were already fairly low compared to its competitors mainly due to problems—either real or perceived—in supporting the enormous data loads of the iPhone. AT&T is now 6 points below Verizon Wireless (NYSE:VZ, NYSE:VOD) and Sprint in the ACSI ratings and 11 points below the aggregate scores of Tier II providers like MetroPCS (NYSE:PCS) and U.S. Cellular (NYSE:USM). T-Mobile’s score are higher but still at a five year low.

“It is common to find a reduction in customer satisfaction after mergers, but it is rare for customer satisfaction to drop ahead of a merger,” said ACSI founder Claes Fornell said in a statement. “Assuming the deal is approved, it remains to be seen if a much larger AT&T can regain the strength of its customer relationships.”

The lower scores aren’t necessarily a reaction to the merger itself. AT&T announced the deal late in the first quarter just before the CTIA Wireless show. But numerous consumer and public interest groups have spoken out against deal and the FCC’s comment public comments page on the merger has been flooded with petitions from private citizens opposing it.

The deal’s most vocal opponent, Sprint, actually saw its ACSI rating jump 2 points to 72, tying it with the traditional leader in customer good vibes, Verizon. Sprint, however, has been improving its standing with the consuming public over the last two years as it has resolved its integration issues and stemmed subscriber losses. In two years Sprint has jumped 9 points in the customer index, which probably contributed to its 1.1 million net subscriber adds last quarter (CP: Are we witnessing the resurgence of Sprint?).

onsumers probably aren’t rallying to Sprint in reaction to the merger just yet, but if its reputation increases while T-Mobile and AT&Ts’ continue to decline, Sprint has lots to gain, as does Verizon.

What could be even more concerning for AT&T is if a negative perception of its wireless business affects customers’ attitudes toward its wireline business. In Q1, all of the television programming and wireline voice providers saw dips in their ACSI scores, but AT&T’s were by far the most severe (CP: ACSI finds AT&T landline telephone, TV in sharp decline). AT&T’s U-Verse score fell 5.6% to 68, while its wireline voice service’s score fell 5.3% to 71.