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Ma Bell's Coming Back
By Tom Van Riper
Forbes.com
Tuesday, June 6, 2006

It's hip to be square.

That Huey Lewis catchphrase, which once defined the yuppie-crazed 1980s, is being adopted by AT&T.  The company is betting that it'll get more mileage with mobile phone consumers from its traditional sturdy image than from the fresh, youth-centered Cingular brand.

And while some think they're crazy, the strategy makes perfect sense.  Give the company credit for thinking globally and for keeping its eye on the big picture, regardless of the hipness factor.  And also for understanding just how valuable the AT&T brand name still is, stodginess and all.

Chief Executive Edward Whitacre said AT&T will ditch the Cingular name on completion of its $67 billion merger with BellSouth, expected early next year.  Cingular began as a joint venture between BellSouth and SBC, which took AT&T's name when it bought out the old Ma Bell last year.  With AT&T now set to assume full ownership of Cingular, Whitacre plans to roll the dice by folding the unit's 50 million customers into the parent company brand name as AT&T Wireless.

Some marketers, especially those at younger, cutting-edge boutiques, can't understand the decision, especially given the billions already spent on building up the Cingular name since its 2000 inception.  These days, Cingular is synonymous with cellular, especially among the under-30 crowd.  A recent poll of marketing pros in Advertising Age ran 88% in Cingular's favor.

"Pretty goofy," says marketing consultant Jonathan Asher of Dragon Rouge of the company's decision.  "AT&T is tired, dusty and old technology.  Cingular is more youthful and about today's technology."

But what's more appealing across all age groups is a name everyone knows.  That's especially true now that people 50 and over own nearly as many of the 160 million U.S. cellphones as those in the younger set.  In fact, a Pew Research study showed that the number of 18-29 year olds buying cellphones actually fell by 3% between 2002 and 2004, while all other age groups grew.  The fastest-growing segment, surprisingly, is the 70-79 set, which increased cellphone purchases 12% over the same period.  Meanwhile, a broadly recognizable name goes a long way, especially when it comes to integrating voice, messaging and Internet services on a global scale.

"If the strategy is to build bundled services, then yes, they should get rid of the Cingular name," says Karl Barnhart, managing director at CoreBrand, a marketing communications company that measures brand value.  One of the few consultants to measure a direct link between a company's brand image and its market valuation, CoreBrand gives AT&T high marks for its longtime image of reliability and its broad global appeal.

To be sure, calculating a brand's real contribution to the market cap of a company is an inexact science.  But CoreBrand's analysis, which isolates factors that are common to stock price and brand image, such as advertising, investor relations, size and general reputation, estimates that AT&T's brand image contributes 14.9% of its $100 billion market capitalization, good enough to nose out Verizon for the top spot in the telecom services industry.

By contrast, scandal-plagued Qwest Communications comes in at 4.3%.  AT&T's brand contribution even outpaces many other notable industry leaders, including Cisco Systems (telecom equipment), Intel (semiconductors) and Bank of America, according to CoreBrand's latest measures.

Of course, the company's decision to drop the Cingular name from its vernacular still carries risks.  Analysts estimate Cingular's current value at $6 billion.  Transferring that type of brand equity needs to be done gradually, experts say, especially since some Cingular customers have already been forced to switch brands once before (former AT&T Wireless customers were switched after Cingular bought out the company following its spinoff from the original AT&T.  They're now headed back to AT&T Wireless after the latest merger).

Is there a risk of alienating customers who never initiated a brand switch but are forced to make a change anyway?

"Yes, it does matter, because people want choice," says brand expert Robert Pasikoff of Brand Keys, who also noted that a current law that gives customers the right to keep their phone numbers when switching carriers makes it easier for them to bolt to Verizon or Sprint.  Still, he thinks today's educated consumer understands corporate buyouts are a fact of life. AT&T Wireless should avoid any massive defections if it seamlessly maintains the same level of service that Cingular customers have grown to expect.

Barnhart of CoreBrand recommends a gradual transition that includes both names for awhile--asserting that what worked for Sprint-Nextel can work for AT&T-Cingular.  An AT&T spokesman said the company will not formally keep a dual name, but will invoke Cingular in its advertising for much of 2007 to remind consumers of the brand's history.

But one thing is for sure.  Short of a major scandal, brand equity built over decades carries more weight than a brand that debuted during the dot-com boom.  Hip can be great, but it also has a shelf life. A few years ago, it was hip to devour Krispy Kreme doughnuts and Red Bull energy drinks.  No more.

"It comes down to the mom test," Pasikoff says.  "Once Red Bull was in mom's refrigerator, it wasn't hip anymore."  That's what AT&T is counting on as it rolls the dice.

http://www.forbes.com/2006/06/05/att-cingular-brand-cx_tvr_0606cingular.html?partner=daily_newsletter