I was recently working on a project for client who is thinking about competing in a new city and wants to understand the real market rates customers are paying. We solicited copies of bills from existing subscribers to the incumbent telco and cable company to find out.
I doubt that anybody would be surprised from what we found, but it was good to be reminded of the billing practices of the big ISPs. Here are a few of the things we found:
- Both incumbents use promotional rates to provide lower prices to new customers or to existing customers who are willing to negotiate and to sign up for a term contract. Promotional discounts were all over the board and seems to mostly range between a $5 and a $25 discount per month. But there was one customers who was getting a $60 discount on a $180 monthly bill.
- Both incumbents also offer bundling discounts, but they were applied erratically. Our sample of bills was not a statistically valid sample, but roughly half of the bills we saw had a bundled discount while other customers buying the same products were not getting a discount.
- The cable incumbent offers the typical three tiers of service offered by most cable companies. While every cable customer had one of these three packages, we surprisingly didn’t see any two customers paying the same price.
- The cable company had programming fees that were separate from the base programming charges – one fee to cover local programming costs and another labeled as a sport fee. These were not always billed at the same rate and there were not being billed to all customers with the same packages.
- There was also a varying range of fees for settop boxes and cable modems by the cable company and WiFi modems from the telco.
- What surprised me most was how widely the taxes varied from bill to bill. Customers with the same products often had tax charges several dollars apart. This makes me wonder why more taxing authorities aren’t auditing bills from time to time to see if all of the tax due to them is even being billed.
- Nowhere on the bills was any customer told the speed of their broadband products.
- There were obvious billing errors. For example, I saw a bill charging the subscriber line charge to somebody who doesn’t have a telephone line. They probably had one in the past and are still paying $6.50 per month long after they dropped their landline.
I hadn’t looked at that many customer bills from a single market for a while. I’ve always known that prices vary by customers, but I didn’t expect them to vary this much. My primary take-away from this analysis is that there is no one price for telecom products. I hear clients all of the time saying things like “My primary competition comes from a $49 broadband connection from the cable company”. But that’s not really true if most people are paying something different than $49. Some customers have discounts to lower that price while others may be paying more after considering ancillary fees.
The bills were confusing, even to me who knows what to look for. It would be easy, for example, for a customer to think that a local programming fee or an FCC line charge are taxes rather than revenue that is kept by the service provider. Both ISPs mixed these fees on the bill with actual taxes to make it impossible for the average customer to distinguish between a tax and a fee that is just a piece of a product billed under a different name.
These bills also made me wonder if the corporate staff of these big ISPs realize the wide range that customers are paying. In many cases there were fees that could have been billed that weren’t. And there was a a wide variance tax billing that would make a corporate CFO cringe.
These bills reinforce the advice I always give to clients. I think customers like transparency and I think the best bill is one that informs customers about what they are buying. In this market most customers could not tell you what they are paying for the various products. Bills can be simple, yet informative and some of my clients have wonderful bills. After seeing the billing mess from these two big ISPs, I think honest straightforward billing is another advantage for a competitor.