Why The Telcos Are Doomed
March 24, 2009 | By Peter Bihr |
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
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.