How They Measure: Post-Outage Customer Compensation
Why $5 from AT&T won’t solve customer satisfaction.
Why these metrics matter
AT&T is the largest network provider in the United States. For AT&T’s more than 200 million subscribers, it’s networks is essential for modern life — including work communications, GPS directions, internet access, multi-factor authentication, and emergency communications.
So, when AT&T suffered an 11-hr cellular network outage in February 2024, the social and business lives of 40% of their customers across the country were left without cellphone signal.
While this wasn’t AT&T’s first customer-impacting network outage, it was one of the longest and caused a 2% drop in the company’s stock.
In response, AT&T sent impacted customers a $5 “Make It Right” credit applied to a future bill and released a public apology.
What’s measured
Cost of subscription — US consumers pays between $20 and $300 a month for internet and on average $157/month or $5.2/day on cell phone service.
Number of reported outages — Outages are incidents of complete network unavailability or where the network conditions do not meet the SLA (service level agreement). For example, an outage from SLA miss could mean the upload or download speeds do not meet the speeds you paid for in your contract.
Consumers can report outages on Downdetector and track outages by zip code on AT&T’s website.
Business vs consumer subscriptions — Business subscriptions can have more strict SLAs, prioritized data over networks, and minimum number of devices to maintain the contract. Business subscriptions may also have dedicated customer service resources.
Switching costs — The cost to break an existing contract and switch subscriptions and devices to a competitor’s service.
Customer churn — the percentage of customers that stopped using the company’s product or service during a certain time period.
Churn = # customers lost during period / # customers at start of period
Number of competitors—The average US consumer has few available Internet Service Providers (ISPs) to choose from. The 3 largest telecom companies (AT&T, T-Mobile, and Verizon) provide cell services for 99% of American consumers. The low competition can mean that even if switching costs are low and customers are dissatisfied, customer churn will likely remain low because there are few alternatives with comparable offerings.
For home internet, 20% of Americans have no or only 1 competitive alternative to their current ISP.
What it means about AT&T’s priorities
So why weren’t AT&T customers satisfied with the $5 “Make It Right” credit?
The dissatisfaction stems from different opinions about whether consumers should be reimbursed based on service cost (pro-rated cost of the service) or opportunity cost (lost income or profit due to unavailable service).
The service cost was on average $2.4 over the 11hr network outage — less than half of the $5 credit amount! But the opportunity cost could include lost wages from inability to do remote work, businesses’ lost profit from inability to use internet-connected cash registers or credit card machines, and incalculable price of lost social connection. Imagine you work as a remote consultant for $50/hr, the opportunity cost of the outage could have been up to $550.
Measured by opportunity cost, the $5 credit can seem like a slap in the face.
While crediting regular consumer subscriptions based only on service cost, in a letter to employees, AT&T provides business subscribers with addition compensation for the “inconvenience” of lost business and profit during the outage.
Why would AT&T prioritize compensation for business subscribers?
Based on the business report for the first quarter of 2024, we see that “Business Wireline” makes comprises a significant and declining portion of AT&T revenue. Declining business subscriptions counteracted revenue growth in consumer units — “Business Wireline” decreased 7.8% from 2023 and “Corporate and other” revenue remained stagnant at about $100 million.
Compensating business subscribers based on opportunity cost could be AT&T’s method for better retaining and attracting large businesses. Because revenue from consumer services continues to grow at a moderate pace and customer church for phones is a miniscule 0.72%, expensive compensation based on opportunity cost was not necessary to retain consumer-level subscribers.
How it might change…
When a freemium service has an outage, how should nonpaying and subscription customers be compensated?
The debate between post-outage compensation based on service or opportunity cost does not directly translate into the growing number of freemium services, “a company where basic features of a product or service to users at no cost and charges a premium for supplemental or advanced features.” Social media websites like LinkedIn, most dating apps like Hinge and Bumble, and music streaming sites like Spotify are all freemium services.
Example 1 — Coffee Meets Bagel
In August 2023, Coffee Meets Bagel suffered a cybersecurity attack and had a 2-week complete app outage. To compensate it’s 10 million users, Coffee Meets Bagel offered extensions for expiring chats, 1000 beans (in-app currency to like profiles), and 14 days of extended premium subscription to paid subscribers.
Offering compensation through in-app perks allowed Coffee Meets Bagel to show gratitude to customers who returned after the attack without spending additional money. Because the data app market is oversaturated and many users are on multiple apps simultaneously, Coffee Meets Bagel compensated both paid and free users to disincentivize switching to larger apps like Hinge or Bumble, hoping to reduce customer churn.
Example 2 — Meta
In contrast, after a 7-hour outage in October 2021 due to a network issues, Meta offered no reimbursement to their users. The only consolation from Meta was that advertisers were not billed for undelivered ads during the outage.
Meta likely determined that compensation was not necessary for users to return after the outage because Meta’s apps like Facebook, Instagram, and WhatsApp captured a large market share of social media (reducing risk of customer churn) and opportunity cost is low because most users (excluding influencers, marketers, and marketplace sellers) do not depend on Meta’s services to make a living.
Regardless of whether the service follows the paid or freemium model, when given, post-outage compensation must be fair, promptly sent, and received without hassle for customers to feel valued.
Last time there was an outage, how were you compensated? Did it feel like the money or perks were a fair trade for your lost time?
