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iPhone halo effect shores up AT&T

Without Apple's iPhone, AT&T would rank lower on satisfaction surveys, says analyst

July 20, 2010 02:41 PM ET

Computerworld - iPhone owners may grouse about AT&T's service, but the "halo effect" of Apple's smartphone significantly boosts the U.S. carrier's customer satisfaction levels, not just its revenue, an analyst said today.

"Consumers experience services through devices, so if they love the device, they're going to love your service," said Carl Howe, director of consumer research with the Yankee Group. "That's not intuitive."

And people love the iPhone.

"The iPhone is the first Apple product to provide a halo effect beyond Apple itself," said Howe, referring to the term that describes tangible and intangible benefits created by a successful product. Apple's first halo effect came courtesy of the iPod, which analysts contended boosted sales of the company's Mac computers.

"The iPhone halo effect is interesting, it's a new phenomenon, and something that other carriers have to take into account," said Howe.

Yankee mined data from a 2010 survey of more than 3,400 U.S. consumers, then verified those results against a much larger 14,000-respondent pool from 2009 to conclude that the iPhone was as different from other smartphones as smartphones are from traditional cell phones.

"The love of iPhone owners for their mobile phones rubs off on the operator providing phone service, boosting their satisfaction with the carrier," Howe wrote in a report summarizing the survey results.

For AT&T, which has been pummeled by iPhone users over dropped calls, poor reception and low signal strength issues since the smartphone debuted in 2007, the fact that it is the only carrier in the U.S. has been a boon, not only to its bottom line, but also to its satisfaction ratings.

According to Yankee Group's survey, 73% of iPhone owners scored their satisfaction with the carrier as an 8, 9 or 10 on a 10-point scale. That's five percentage points higher than the number of AT&T subscribers overall who gave the provider similar scores, and four points higher than all users of rival smartphones and cell phones.

The research company's numbers for AT&T are in line with other customer satisfaction surveys: Last December, for example, Consumer Reports ranked AT&T dead last among the four major U.S. service providers, with the 50,000-plus subscribers who were polled pegging their satisfaction at 66 out of a possible 100. Verizon took honors with 75, while T-Mobile and Sprint followed at 70 and 67, respectively.

Without the iPhone, AT&T's satisfaction ratings would have been even lower, Yankee's survey showed. While the mean satisfaction rating of all AT&T subscribers was 7.9 out of a possible 10, the mean for iPhone owners using AT&T was 8.3.

Howe also spelled out the dollars and cents benefit of the iPhone to AT&T, a topic that's been well covered. Because iPhone owners on average pay more in monthly services than do consumers using other phones, AT&T receives an estimated $248 more per iPhone subscriber over a five-year period than they do for the average smartphone customer.

AT&T's estimated 15 million iPhone subscribers net the carrier about $750 million more each year than the same number of customers would generate if they owned another smartphone. "Even with the cost of the additional bandwidth necessary to support the iPhone, AT&T still makes a nice profit on those subscribers," Howe said.

Other carriers jealous of AT&T's exclusive iPhone deal -- which some analysts have predicted will expire early in 2011, with Verizon on the inside track to also partner with Apple -- should take the halo effect into account when they run the numbers and enter into talks with CEO Steve Jobs, Howe argued.

"It's tempting to simply write off [the iPhone 4's quick 1.7-million units sold] as the obsessive behavior of Apple aficionados," said Howe. "[But the] data shows that mobile operators have sound business reasons to court these consumers."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at Twitter @gkeizer or subscribe to Gregg's RSS feed Keizer RSS. His e-mail address is gkeizer@ix.netcom.com.

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