When times get tough, AT&T's a softie

It’s not surprising to hear that a telecom service provider is lowering its prices for customers who say they are in financial distress. Most service providers have what they call a “save” queue, or script, that they use when customers call to disconnect a service. Customer service representatives can offer different packages, or they can lower costs temporarily or permanently.

I was surprised, however, to learn how drastically AT&T is willing to lower its U-verse TV prices in order to keep a triple-play customer. In this case the customer is Alan Weinkrantz, a San Antonio-based industry consultant who was an early U-verse customer and has been blogging on his experiences ever since.

In the face of this recession, Weinkrantz made a lifestyle change. He decided to become a “walk-away consumer”: someone who seeks the best possible price and walks away when he doesn’t get it. Weinkrantz admits the strategy didn’t work at Neiman Marcus, but it succeeded at his local BMW dealership — and it worked big time with AT&T.

“I was shocked,” Weinkrantz said. His bill went from $164 to $94, and $40 of that savings was on U-verse 400, the top high-definition TV package that AT&T offers.

As I said, it’s not surprising that AT&T was willing to make these cuts — it’s a smart move to shave some margin rather than have a customer cut the cord and spend a lot more money winning that customer back. Weinkrantz will now be a potential customer for future AT&T services.

But the $40 drop for TV services is surprising because the video business is not high-margin for telcos. In fact, unlike voice and data services, which require upfront capital investment but then generate revenues in perpetuity, video requires monthly payments to content providers on a per-customer basis. That cuts into profit margins.

AT&T declined to talk about its pricing strategy, so it’s left to conjecture. Weinkrantz believes the company wants to look good for Wall Street in tough times, and I’m inclined to agree. I suspect AT&T also doesn’t expect thousands of its almost 1 million U-verse customers to call asking for discounts. On that score, they may be surprised.

Following Weinkrantz’s example, I called my service provider to see if I could lower my bill, and — even without threatening to leave — knocked off $20 a month and doubled my Internet service speed in the process.

Given the daily drumbeat of layoff announcements, I would expect many more such calls to roll into service providers, which means we could well see an income downturn for the current quarter and into 2009. In the long run, though, it makes sense to retain customers now and maybe even build on their loyalty.