AT&T's lawsuit over Verizon ads could backfire, some argue

But others see lawsuit as necessary, partly to satisfy regulators

AT&T Inc.'s lawsuit against Verizon Wireless over its TV ads could be a public relations mistake, some analysts said today, but at least one said that the company had to bring the lawsuit to protect itself against potential regulatory or legal actions.

Some experts said the lawsuit brings into focus a perception among some consumers -- iPhone users in particular -- that AT&T's network is inferior to Verizon's. An opposing view is that AT&T had to file a lawsuit, partly to satisfy regulators and also to head off a potential class-action lawsuit by unhappy customers. Yet another expert said AT&T would only face backlash if it loses the suit.

AT&T filed the lawsuit Tuesday in federal court in the Northern District of Georgia, claiming that Verizon's "There's a Map for That" TV ads are misleading. AT&T claims the ads lead viewers to believe that areas shown in white on a map of the U.S. have no AT&T wireless coverage at all, but in fact the white regions are just those that are outside of AT&T's fast 3G service area. Verizon said through a spokeswoman Tuesday that the ads are accurate and clearly state in text that the white areas on the map just have no 3G service and are not entirely without coverage.

AT&T is seeking an emergency injunction to stop the ads, arguing that they are causing AT&T to lose "incalculable market share" and customer goodwill. It is also seeking unspecified monetary damages.

However, three experts said that the Verizon ads alone would not have focused as much public attention on AT&T's perceived network weaknesses as the AT&T lawsuit has.

"I think AT&T has a good point about the Verizon ads, but unfortunately by filing the lawsuit, they are showing their shortcomings," said Gene Grabowski, a crisis communications consultant at Levick Strategic Communications in Washington. "The lawsuit brings [AT&T's network coverage] to a higher level of scrutiny."

On a personal level, Grabowski said he recently bought a BlackBerry device that uses AT&T's network and found that the device works well. When the ads started airing in October, Grabowski said he perceived them as "just ads." He focused more intently on the claims when the lawsuit was described in the media and was left concerned about AT&T's network as a result.

Similarly, Rob Enderle, an analyst at Enderle Group, added, "If I were AT&T, I would have let this go. If you have a superior network offering, then a lawsuit makes sense, but AT&T is already inferior and may give Verizon's campaign more power as opposed to detracting from it."

Jack Gold, an analyst at J.Gold Associates LLC, added that the lawsuit is a "no-win for AT&T" and will be costly. "AT&T already has had a bad rap with 3G, and this will make things worse," he said.

However, IDC analyst Scott Ellison said AT&T had to file a lawsuit over the ads, in part, to satisfy government regulators that monitor AT&T's network performance to make sure it lives up to the company's claims.

"The AT&T lawsuit is not going to matter for consumers, but AT&T is doing this for people at the Federal Communications Commission and the Federal Trade Commission, because AT&T needs to counter a perception that AT&T is selling something it can't deliver," Ellison said.

Ellison also said AT&T is apparently "trying to head off a class-action lawsuit from iPhone users and others who may say, 'You sold us this phone and we can't make calls with it.'"

Ellison has been one of the strongest critics of AT&T's network performance, especially with the iPhone, which incorporates many multimedia-focused applications that require reliable, fat bandwidth.

In October, he said AT&T "has immolated itself with network capacity issues" that are worse in crowded urban areas.

But Ellison defended the lawsuit, noting that AT&T's network problems "apparently don't matter much," since the carrier just reported an "incredible" third quarter, with 3.2 million iPhone activations. "That's a great number by any measure, even more so given the media coverage of AT&T's network capacity issues in key areas like New York and San Francisco."

All four experts agreed, however, that the competition is fierce between No. 1 wireless carrier Verizon, with 89 million subscribers, and No. 2 AT&T, with nearly 82 million. Such a competitive atmosphere can lead a corporation's lawyers to push legal matters forward, they said.

But "litigation is a blunt instrument and should be the last tool used" by a company, Grabowski argued. "In a case like this, a company would be better served with a communications campaign or an information campaign pointing out that Verizon is splitting hairs or being misleading."

Grabowski said in highly competitive markets, company executives and their attorneys might feel a lawsuit is imperative. "They are almost like a nation that feels it has to go nuclear rather than try diplomacy and subtle means because that takes time and work," he said. However, he admitted that in some instances, a lawsuit "signifies how serious you are."

Even if AT&T is right about the facts and wins the injunction, it will still face some backlash from bringing the lawsuit, Grabowski said. "With the Verizon ads alone, AT&T might lose 10% of their customers, but they may lose more with the lawsuit," he said.

Gartner Inc. analyst Ken Dulaney, however, said the Verizon ad won't persuade iPhone users to switch to Verizon, simply because Verizon doesn't have the iPhone, which is currently exclusive to AT&T. "Most customers will ignore the ad and stay with AT&T," he predicted.

Ellison, while contending that AT&T had no choice other than to file a lawsuit, said he finds the Verizon ad to be "funny and brilliant," since it encapsulates the key difference between Verizon and AT&T. "Saying 'there's a map for that' as a play on iPhone's 'there's an app for that' is brilliant," he said.

Copyright © 2009 IDG Communications, Inc.

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