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24 Mar

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Why The Telcos Are Doomed

March 24, 2009 | By |

My apologies for the dramatic title. Please let me explain what I mean, and why (drama aside) I think it’s true if the telecommunication companies (telcos) keep operating the way they do.

Since this post is somewhat lengthy, here’s the summary upfront:

  • Telcos don’t act in their customers’ interest
  • Customers don’t trust their service providers (from bad experiences)
  • Lock-in will backfire on a massive scale and drive customers away
  • As soon as a new provider comes along and offers decent plans, fair & transparent conditions, and no lock-in, they’ll easily win the market

Epic Fail by Flickr user Ape Lad

Now that you roughly know what I’m going to say and are still reading, I’ll go ahead and assume you’re interested. So let’s dig in there, and please share your thoughts in the comments.

Nobody Likes Telcos It’s sad to say it like that, but let’s face it: There’s hardly a customer of a phone carrier with an emotional tie to their provider, at least not a positive one. Why is that? Telcos have a (seemingly global) history of ripping off their customers, maximizing their profits, and slowing down innovation. It doesn’t even matter which one we’re talking about: Deutsche Telekom, Arcor, O2, Vodafon, E-Plus, all of them have a track record of very unhappy customers. Just ask any person you know – anybody, really – and they’ll have a horror story to share about their phone carrier over-charging, about incredibly bad customer service, about not getting out of their contracts despite trying hard.

The Problems: Bad Service, Over-Charging, Lock-In If you’ve encountered an ad for one of the major telcos, you might have noticed how strongly emotionalized and moody these ads are. They probably have to be, after all most customers aren’t interested in the products on offer here, or maybe the products offered just aren’t really targeted well at the customers.

We, the customers, have all reason not to be happy with our providers.

Bad Service: The hotline staff is chronically under-trained and over-worked, and briefed to stuff marketing crap down our throats. (I had a series of conversations with the support staff for my E-Plus/Base contract where I got completely different and mutually exclusive, opposing answers depending on the person I talked to. Also, some of them were seriously trying to help, but it was clear in the context that they’d be violating some kind of internal set of rules.) You can’t get a simple, clear & open answer to your questions in any telco hotline I know about. That’s just the way the system is set up. (“We’d like to offer you this Easter Special that gives you 5 extra SMS this month for just $3, plus another 2-year contract, isn’t that great?” Sounds familar? There you go.)

Over-Charging: Phone companies charge too much for what they offer. I’m not even talking about roaming fees. (Which are ridiculous in digital networks anyway.) I’m talking about the prices for very clearly defined, and simple enough, services: 1 text message, 1 minute call time, 1 MB data transfer. All of these are set in a way not to cover the companies expenses (and of course some profit), but based on what the market used to be willing to pay. Remember the days when long-distance calls were so much more expensive than calling within your area code? That’s the model still underlying today’s pricing system. Not even flatrates go uncapped these days. A simple, transparent pricing system without the fine print is the way to go.

Lock-In: Bad idea. It is tempting for a company to go for total customer lock-in: If customers commit to a 2-year-contract it’s easier to calculate, and hey, once we have them we can milk them, right? Wrong. That’s yesterday’s thinking. Openness rules, like everywhere, in the communications arena. If I sign a two year contract with my phone carrier (which I’ve done, again, about 6 months ago), that’s not a sign that I vote for one company. It’s just a sign that there’s no competitor out there who’s significantly better.

If you’re a telco, you shouldn’t be happy about this race to the bottom. You think offering iPhones, the G1 or other mobile devices exclusively through your contracts will make people want to be your customers? Hell no. Maybe they’ll put up with you for their phone, but they sure would rather come and play with you if it was out of choice, not force. Design your contracts so that your customers can leave anytime they want, and you’ll see that if you offer better services they’ll want to stay with you.

Trust Issues Customers don’t trust their service providers. They just had too many bad experiences.

Just a little anecdote I heard the other day to illustrate my point: Vodafone called Michelle Thorne to offer her a new contract and a shiny new Blackberry Storm – she had been a Vodafone customer for 10 years. First, some inquiries brought out that she had an old contract that made her over-pay for her usage by far, so Vodafone offered a new contract, much cheaper. (Why didn’t they offer it without being prodded?) Then, some more oral inquiries about the nature of the data flatrate included in the new contract confirmed that it is indeed a flatrate. A few days later it turned out that the “flatrate” was indeed just “unlimited access” to Vodafone Live, some kind of AOL-style limited portal of Vodafone partner sites that are, frankly, very very useless. A joke, really. Another hotline call and the staffer did have the cojones to claim that yes, the flatrate also included “unlimited surfing” on the real web – “up to one megabyte”. Also, another contract was offered with a (seemingly) real data flatrate for a few bucks less then the original offer.

Notice the pattern here? At every single point of contact the provider tried to rip her off. Not a single time did they act in her interest, but only their own. Maybe that’s not the best way to treat your customers? That attitude, combined with the 2-year contract lock-in makes for a nasty combination.

The very moment a new provider pops up and offers a transparent pricing scheme, decent service (think MediaTemple as opposed to 1&1) and the chance to leave the contract anytime I want, I’ll switch. And yes, that’s even if their network coverage isn’t as good or they don’t subsidize my phone. Not just because they’re new player. But because if you can leave anytime, the company isn’t as likely to try and screw me as a customer.

Change? At Cebit, Johannes Kleske, Steffen Büffel and I had a brief conversation about telcos, where we were discussing most of the above. Johannes pointed out something that should be obvious, but can’t be overstated: Tiny, incremental changes from the status quo won’t help either side here. (“We now offer SMS for 18c instead of 19c! Customers will love us!” That’s not going to fly.)

Telcos, you need to get out of your own shoes and once and for all offer what your customers want, not what you think you can push at customers that they might sign up for if the marketing is done right.

So what is it that we want? Some fairly basic things, really:

  • 100% transparent contract and pricing (forget extra fees hidden in the small print).
  • No lock-in through contract or platform. Allow us (and our data) to leave if we’re unhappy, and we probably won’t. (Because you won’t disappoint us, right?)
  • Excellent service. I’m not talking about funky hotline music, but well-trained, well-paid staff who know what they’re talking about.
  • Act in our interest, not yours. (In fact, our interest should be your primary interest, since we’ll happily spend a lot of money on you if you don’t try to screw with us.)

All of this seems pretty obvious, is it really so hard?

All this is written with my experiences limited to the German market, the U.S. and Australia. Maybe in other countries there are better carriers, or independent ones? If you know any examples, please share in the comments. Thanks!

Full disclosure: I’m not involved in any way with any telco or similar service provider. I’ve worked with subsidiaries of Deutsche Telekom before (see my client list), but on completely different stuff. I’m a customer of E-Plus/Base for my cell phone and data services, and Hansenet/Alice for my DSL at home. I’m not overly happy with either of them, but I’ll live.

Image: Laugh-Out-Loud Cats #539 by Ape Lad, licensed under Creative Commons.

Comments

  1. Spinning the Vodafone Live platform as data flatrate with “unlimited surfing” was the biggest sales pitch joke I had ever heard. If your online experience consists of listening to a handful of pop songs and checking your phone bill, way the hell would you buy a smart phone!?

    Peter, thanks for the constructive rant. Hope the telcos are listening! (^_^)

  2. Thanks! Strangely, that last part of the telcos listening i’ve heard a few times as feedback. There certainly seems to be some demand here. Who knows, maybe they have staff who’s reading this blog? If so, please feel free to weigh in…

  3. Nice picture of the status quo. As a business customer of t-mobile I have to add, that I am pretty contented with the service t-mobile provides with its customers. But unfortunately this is the exceptional case for a german telco. Besides the german communication market has to modernise its format, there a a lot of countries where prices are at a level we can´t dream of.

  4. Hm, I think you got the right conclusions on what would make the telco market better and help it improve. Although I think you seriously stumbled at the reasoning.

    Now, let’s see..

    “Nobody Likes Telcos”. Overgeneralized, thank you. Me, I’m quite happy with my telco now although I did change it to get there. But maybe that’s just me (although I don’t think so).

    Concerning bad service and 5 people telling you 8 things: I think most of that comes from franchising. The actual problem I think is that 5 people that can make you 8 different offers that are all valid. While it might be nice for the customers to have that kind of freedom, it totally rips apart any transparency there could have been. Same goes for your “trust” issues.

    “Phone companies charge too much for what they offer.” .. “All of these are set in a way not to cover the companies expenses (and of course some profit), but based on what the market used to be willing to pay.”

    No, really? A company that sets the price according to demand and what the customer is willing to pay? Yes, that makes sense. Even more so because that’s the way prices are normally set. Why would any sane company set the price lower than what people are willing to pay?

    Let’s face it: if we pay it, they will offer it for that exact price.

    “If customers commit to a 2-year-contract it’s easier to calculate”. Right. And you have to calculate damn well to even remotely consider building up your own mobile network infrastructure.

    Even if you don’t actually own your own infrastructure, you’re renting slots from someone that has one – and to guarantee your access to it, you have to plan in advance. But agreed, 2 years is a tad long. 3-6 months should do in this case. But who builds and operates the networks then, if everybody is renting? And if everybody is renting, the prices of the networks to rent from will soar.

    So, yes, it telcos could do a lot better in the customer care and transparency department. Other than that: mobile networks are sadly pretty complex to build and maintain. So we won’t see lots of new national players with their own networks.

    And that’s the real reason I think they should address the things on your list. Because the one that does get the customer support and transparency right would have a HUGE advantage over the others. Hell, even with Lock-In and the current price, I’d be there. And I think you’d be there, too. Because who’d care if there was a 2 year Lock-In if the company would be that way?

  5. Good point emzo – for corporate clients the telco world looks often different. As a freelancer I only have hearsay reports about the situation there – anyone with first hand experiences there?

  6. Hawe

    Hi, beeing used to read write and sometimes think “in english” for some reasons of beeing precise I will use my native language: Die kurzanalyse von Peter Bihr ist zutreffend – aber wohlfeil. Richtig – aber partikulär. analytisch – ist aber anekdotisch.

    wohlfeil deshalb, weil Nickweisheiten publiziert werden. Nickweisheiten sind welche, zu denen alle die selbe Meinung haben müssen (hat nicht jeder zumindest einen Freund, dessen Schwager von einer Telco mal schlecht behandelt wurde …

    partikulär weil diese allgemeine analyse über eine branche den ungenutzten nucleus einer tiefgreifenden analyse in sich trägt. Ungenutzter Nucleus? Ich nehme Deinen Text und mit “suchen / ersetzen” dichte ich ihn um in Versicherungen, Banken, Autohersteller, Lebensmitteldiscounter, Berater, “die” Internetbranche – es passt, oder?

    anekdotisch weil sie nicht faktenbasiert ist. aber das muss ein blog auch nicht sein.

    was wäre wenn die krise der banken eine krise der gesamten wirtschaft wäre? lese ich im Blog “shift happens”. und stimme dem zu.

    was wäre wenn nicht allein die telcos – sondern “die wirtschaft” doomed ist? das eigentliche problem ist imho, dass unser aktuelles wirtschaftssystem dominiert wird von Unternehmen, die wenig achtsam mit sich, ihren mitarbeitern, den kunden umgehen.

    respektlos auf “ihr” singuläres wachstum setzen . keine team-player sind. sind marathonläuferInnen, keine fussballspielerInnen.

    Aber: I agree telcos are doomed, that’s for sure. and with them many others …..

    tnx to Peter Bihr for starting this Post with his analysis.

    Hawe

  7. Dirk, thanks for the in-depth feedback. Some great points, and of course you’re right, I was over-generalizing to make my point.

    As for renting vs building infrastructure: Not sure this is really as huge a problem as it seems – after all, we’re seeing the same trend in parts of the web infrastructure. Take cloud computing as opposed to running your own servers etc. Since there clearly is a demand for rented infrastructure, I’d be surprised if there weren’t a market.

    Speaking of market, you mentioned that it’s normal that companies charge what the market is willing to pay. Correct, of course, but I think that’s changing now. People used to cough up what, 12c or so per minute in a regional call, which would seem ridiculous now with all the flatrates for landlines out there. We saw the same for dial up internet, which was expensive and gave way to much faster & cheaper broadband. I think the moment a company offers a decent (and transparent!) set of plans, they’ll notice how large the gap has become between the existing pricing models and the market’s real willingness to pay up.

    And yes, you’re absolutely right: if a company did act according to the demands outlined above, most of us (including me) wouldn’t mind the longer contracts. Then again, that kind of company wouldn’t require them anyway ;)

    Thanks again for your valuable input!

  8. Brent G

    You hit the nail on the head with this post. There are fundamental problems at the Telcos. I can imagine that it would be almost impossibly hard to change the set culture that has pervaded these machines in order to get back to a customer-centric business. Here’s hoping.

  9. Since I´m working with the charging model of a big german telco I know the problems coming with them, to me and the customer. The pricing is horrobly incomprehensible. Too many “options”, too many “extras”, “add-ons” and “possibilities”. Let´s get to a straight pricing, understandable charging models and the customer will reward this. As I said before I`m in the “lucky” position to have a special business customer service. Free 24/7 help hotline, NO tape, but: well educated people trying to help you and find fast and suitable solutions for each problem you face them, no matter when, how often or why you call them.

    I think these two points, good pricing paired with good service, will be the key for the future to maintain your customers.