BOSTON (CNN/Money) -
Investors in cellular wireless have seen some unfamiliar blips across their radar screens in the last few days: positive news from AT&T Wireless, the industry's red-headed stepchild.
Moving toward its acquisition by Cingular for $15 a share, the company has launched a new product, the Ogo. The device is a big departure for AT&T Wireless (AWE: Research, Estimates): It's the first one the company has "conceived, designed, and launched" on its own, according to a spokesperson.
Can investors expect any "trickle-up" benefit to Cingular's parent companies SBC and BellSouth?
Not likely. The Ogo probably won't add much revenue to ATT Wireless's coffers and in fact may do little more than drain cash when the company is struggling to retain customers. If anything, it signals that Cingular will have its hands full getting the people in the acquired company to get their priorities straight.
What Ogo does
The device is centered around text-based messaging. It is used not to make calls but to e-mail, instant-message, and text-message. It will sell for about $100 after a rebate, and the monthly data fees start at $18.
According to senior product director Stacia Pache, the Ogo is aimed at "14- to 30-year-old customers, with the sweet spot of 18- to 21-year-olds."
Unfortunately, I think the product's aim is off and demonstrates some of the problems AT&T Wireless has encountered of late -- namely, a lack of focus and a lack of understanding customer needs. (Full disclosure: I'm an AT&T Wireless subscriber and have been for a number of years.)
ATT's thinking is simple: Gain a foothold in the important youth market, turning today's teens into tomorrow's contractually obligated consumers.
Setting aside the question of whether there is any brand loyalty in the cell-phone market, let's look at the cost. Anytime a company "creat[es] an entirely new category," as the Ogo press release states, it must spend heavily to market the device and familiarize consumers with the offering.
Consumers as a whole are aware of messaging-focused devices, thanks to the lineage of the pager and the BlackBerry, but the inexorable march of the category is toward more functionality in a device, not less.
What's more, the notion of prepaid cell-phone plans aimed at teens too young for credit cards is luring big players.
"Ogo's market opportunity will shrink over time as prepaid offerings become more attractive," says Kevin Roe, principal analyst with Roe Equity Research. Roe also questions whether a market even exists for the Ogo. "Once you get into high school, and certainly college, you need a regular cell phone, and you won't want to carry around two devices."
A risky choice
On one hand, the Ogo looks like a pretty cool toy, and it may appeal to a very small group of young device fetishists. I'm 34 years old -- well north of the target market -- and maybe I don't realize that teens would rather text than talk.
But I don't think that, given the choice, they'll forgo the ability to talk to friends. Or that, at the very least, they'll carry around a separate device to "fully replicate the desktop IM experience."
The bigger issue is why AT&T Wireless is spending millions of dollars on a product with an unproven chance at success when it clearly has bigger concerns. Though the U.S. cellular industry as a whole has flourished in the past year, AT&T Wireless has had well-documented struggles. It lost 300,000 of its 22 million customers in the first six months of 2004.
And even as it lost more subscribers than any other provider, it received the most complaints to the Federal Communications Commission for its handling of those who switched to other carriers. Cingular is going to need to address the customer satisfaction problem.
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