Tag Archives: Competition

What About Competition?

In comments made to the FCC in the recent docket looking at customer service practices, the California Public Utility Commission filed comments that said that big ISPs don’t focus on customer service because they don’t have to. The CPUC said that only 26% of California residents have a choice between two fast ISPs.

The federal government has been concentrating on making sure that homes have at least one fast option for broadband, and that’s an obviously good goal at a time when Internet access is considered by most households to be a necessity.

But the numbers cited by the CPUC are not unusual. Across the country there are still a lot of places where homes and businesses have only one fast ISP option.

There are real consequences for any neighborhood that has only one fast ISP. Such neighborhoods have no competitive options, and the one fast ISP is effectively a broadband monopoly in that community. There are clearly documented consequences of being served by an ISP that has a virtual monopoly.

The best way to think about that is to look instead at what happens when a community gets real competition between two or more ISPs that offer gigabit speeds.

  • Lower Prices. The conventional wisdom is that competition lowers prices by at least 15%. In today’s world of competing for customers with lower prices and specials, a lot of households are seeing much bigger discounts by playing two ISPs off against each other. As someone who has been in the industry for a long time, this reminds of the marketing battles in the 1990s by long distance companies. Customers learned they could get cheaper rates by calling and saying they got a better rate from another carrier.
  • Improved Customer Service. When a new competitor moves into an area that was previously a monopoly, it’s almost inevitable that the original monopoly ISP will step up its game. Improved customer service means the ISP will respond to customer outages and troubles more quickly. They may even show up on time for home visit appointments.
  • Technology Upgrades. ISPs operating in a competitive market tend to upgrade technology a lot sooner than in non-competitive markets. If nothing else, the original monopoly provider will usually tweak the network to work better. For example, every cable company can improve performance by tightening up frequency leaks in the network. When faced with competition, crews seem to suddenly find the time to do long-ignored maintenance.

A lot of cities were disappointed when they learned that BEAD funds would be deployed almost entirely in rural areas and wouldn’t benefit cities. Early press releases made it sound like BEAD could be used to help neighborhoods served by old incumbent networks, but it quickly became clear that BEAD was not going to be allowed for that purpose.

Most cities are still acutely aware that technology differences in their city that are creating competition haves and have-nots. The consequences for neighborhoods with only a single legacy monopoly provider can be dire in a city where everybody else is served by both a cable company and a fiber overbuilder.

A lot of the competition gap will be fixed as ISPs continue to build fiber networks. AT&T and other largest ISPs have announced plans to build over 60 million fiber passings by the end of 2030. Not all of that is new passings since millions of fiber passings will compete with another fiber provider, but this construction will improve competition in many communities. Unfortunately, we’ll have to wait until 2030 to see who gets left behind.

Regulating Broadband

I’ve often hear it suggested that we ought to regulate broadband like a utility. The proponents of this idea say that this is the only way to make sure that everybody gets broadband and to make sure, over the long haul, that broadband stays affordable. But it’s never been entirely clear in hearing these arguments if people mean we should regulate the physical networks that carry broadband or the broadband products that ride on any network (or both).

Obviously in the current environment where the big ISPs have gained the favor of both the FCC and Congress regulation of this sort is not going to happen. But governments change, and so the time could come when such regulation is possible. But even if we had a pro-regulation government, I see all sorts of issues that would make such regulation hard to implement and still remain fair. Consider the following issues:

Size of ISP. Any regulation might only need to be applied to the biggest ISPs. A few companies like Comcast, AT&T, Charter (Spectrum), Verizon and CenturyLink together sell over 80% of the broadband connections in the country (and more if you count cellular data as broadband). Smaller ISPs have little market power, and some of them, like the smaller independent telephone companies, would tell you that they are already regulated to a large degree.

Incentive to Deploy New Technology. One of the reasons that historic telephone regulation worked so well was that the technology used to deliver traditional telephone service was expected to live out its full economic life, meaning that telcos could make an investment and know that they would recover the cost of doing so. But that is no longer the case. We now live in a world where there are dizzying new technologies developed all of the time that are faster, cheaper and better at delivering broadband. The large ISPs are not keeping up with technology improvements today in a fully deregulated environment where they can charge enough to recover their costs – it’s hard to imagine that regulations would do anything but slow down the rate of technology upgrades.

What gets Regulated? Today’s fiber networks are not as simple as older TDM networks. A lot of new fiber construction is being done for purposes other than serving residential customers. For example, Verizon just announced that they were ordering over $1 billion of fiber cable – but I think most of this fiber is going to be used to replace leased transport to cellular towners and is not going to be used to bring broadband to customers. It’s going to be hard in a complex network to define regulated and non-regulated assets.

What About Competition? Regulation works best with monopolies, which is why there is still regulation for electric and water companies. But the ISP world is a maze of differing levels of competition. There are cities – or neighborhoods of cities – that are competitive and areas where there are virtual monopolies – and this can differ block by block in larger cities. It’s hard to think of a regulatory scheme that somehow accounts for such differences.

Regulating Parts of Businesses. The big ISPs are no longer just ISPs, and in fact most of them make a most of their profits elsewhere. I just wrote a blog a week ago discussing how complex Comcast has become with their mix of cable networks and other businesses like television networks, sports teams, and soon cellular wireless. It’s incredibly challenging to regulate companies of this complexity because they have the ability to manipulate the books of the regulated entity to show any level of earnings they want. They could shift costs to make a regulated entity perform as well or as poorly as needed to satisfy regulators.

Realities of Wall Street. Rate regulation has always meant setting a reasonable return on investments for the regulated entity. The return for telephone companies that are still under rate regulation is being phased-down to just over 9%. To those of us who wish we had a bank account that could earn that much it might sound like a high rate of return. But the realities of Wall Street are that capital investments must earn more than that. If we put that kind of cap on new fiber investment for the big ISPS, I think the result would be a massive cut back in building new fiber. Wall Street would punish ISPs for investing capital at returns that low. And if the big companies stop building the rest of the industry including equipment vendors come to a screeching halt.

Challenges of Re-regulation. I’ve tried to work through the idea of how to take companies like Comcast and somehow regulating them. Putting the politics and the chances of this happening aside, I’m not sure how you can take assets that were built during a time of no regulation and somehow start regulating them. The court cases against that effort would probably stretch for a decade.

My conclusion from all of this is that it’s an interesting idea and thinking about it is a great mental exercise. But I can’t envision how you could somehow shove today’s unregulated companies back into a regulated environment. Even was the government determined to do so it might be too hard to do without causing more harm than good.

The Anti-Competitive US Marketplace

President_sealThe US Council of Economic Advisers released a report on April 15th that cited examples of anticompetitive market power throughout many sectors of the US economy. The report says that in many sectors of the economy that the fifty largest companies control more of the market today than they did in 1997.

The conclusion of the report is that industry concentration has an overall negative impact on the economy. The largest companies in each industry tend to erect barriers that squelch start-ups, thwarts innovation and discourage real competition.

The president used this report to issue an executive order on April 30 that instructs all executive agencies and departments to submit a plan within 30 days of ways that they can promote competition. I don’t hold out a lot of hope of success for this action due to the fact that we are now deep into the last year of this presidency. But it’s still refreshing to see the government acknowledge that competition is better for our economy than having an economy controlled by large companies with huge market power.

There are few industries that demonstrate the negative aspects of anti-competitive behavior than telecom. The cellular part of the industry is probably the worst since four companies have the vast majority of customers in the country. There are not a lot of other cellular companies that own their own spectrum and many competitive alternatives to the big four, like Cricket, actually ride the networks of the bigger companies and buy wholesale minutes from them.

But right behind the concentration of cellular companies are the ISPs. A handful of largest cable companies and telcos have more than 90% of the broadband customers in the country. And even in markets where these providers overlap, the competition between these large companies can best be characterized as duopoly competition where the companies charge roughly the same prices and don’t compete in any meaningful way.

The only broadband markets in the country that have real competition are those where some outside party has entered the market with a competing network. That might be a municipal provider or else one of the handful of commercial providers that are building competitive networks.

Earlier this week I wrote about how the largest ISPs all attack municipal competition and the reason for this is clear. They don’t want there to be success stories where it can be shown that a city was effectively able to take over a market – because such an idea could spread to a whole lot of other cities.

The report goes on to show that government sometimes has been able to curb some of the worst abuses of anti-competitive behavior. There were a few government actions touted in the report as positive steps the government has taken to promote competition. One big action in the telecom space was blocking of the merge between AT&T and T-Mobile. Another was the FCC’s order of net neutrality and of placing broadband under Title II regulation.

But the feds also sometimes get it wrong. Right now the FCC is using the excuse of lack of competition as the motivation for ordering an opening of the settop box market. But I talk to folks in the industry all of the time and nobody I talk to thinks that settop boxes are much of a concern. If anything, the feeling is that new technology will naturally kill settop boxes and eliminate the need for them.

I was relieved to see the merger between Comcast and Time Warner die, but we are still seeing consolidation in the cable industry and the largest companies are getting more powerful. There is very little positive that can be gained from the Time Warner and Charter merger. And it’s always been disturbing to see large ISPs that also own programming content. That alone gives Comcast a huge advantage over anybody that tries to compete against them.

I don’t know how anybody can undo the consolidation in this industry. The big companies have locked up the market and the cost to build new networks to compete against them is a major barrier to entry. But perhaps having new networks built by municipalities and other commercial providers will chip away at enough of the market over time to make a difference.

 

Squelching Competition

Bell_logo_1969I doubt that many people outside of the broadband industry understand how good the large incumbent cable companies and telcos are at squelching competition. They have a whole arsenal of strategies to make it hard for somebody small to compete against them.

There is no better example of this than the very successful war that these big companies have waged against municipal broadband. I’m not entirely sure why they have singled out municipalities other than they are somewhat of an easy target. Certainly the actions of the incumbents against cities is far out of proportion to the actual threat. On a nationwide basis the amount of competition from municipalities is miniscule. Following are just a few of the strategies they have used against municipalities:

Creating Laws to Prohibit or Curtail Muni Competition. There are now 23 states that have some kind of prohibition or major restriction against broadband competition. Many of these laws have been written by the incumbents and have been passed due to heavy lobbying and political contributions given by the incumbent providers.

Every year there are attempts to pass new restrictions, often using template language developed by ALEC (American Legislative Exchange Council). This group’s authors suggested statutes that benefit their corporate sponsors and in the broadband area they seem to focus on municipal competition. The FCC recently overturned some restrictive anti-muni state laws in Tennessee and North Carolina. The incumbents urged those states to appeal the FCC order, and even before the appeals have been decided in court those states are trying to pass new laws to replace the ones that were overturned.

Lawsuits or Threats of Lawsuits. I can’t recall a lawsuit where the incumbents have been successful in keeping a city out of the broadband business. But lawsuits are great delaying tactics and can cost a lot of money to defend. Lafayette, Louisiana for example was sued several times before it was able to float bonds to build its broadband network. Lexington, Kentucky was recently sued and they hadn’t even yet found a broadband partner. But lawsuits are a very effective threat and I know cities that have decided not to tackle broadband due to the fear of facing costly suits.

Constant Bad Press. The incumbents sponsor a never-ending barrage of whitepapers and policy research papers that demonstrate that municipal broadband does not work and is a failure. I can think of half a dozen such papers that have attacked Lafayette since they have been in business.

The problem with these papers is that they are full of lies and inaccuracies. While there have been a few municipal failures with broadband networks, most of the operating muni networks are happy with their results and are covering their costs of operations while bringing true competition to their community. The main purpose of these papers is to persuade politicians that muni broadband is a failure – even when it is not.

The anti-competitive tactics aren’t just used against municipalities. Any CLEC that has to interface with a large telco network can recite a long string of stories of how difficult the big companies make it for them to operate. Something as simple as ordering a new circuit or connecting with incumbents can take forever and can cost far more than its worth. The big telcos began almost immediately after the Telecommunications Act of 1996 to make the prescribed processes as non-functional as possible. The intransigence of the large telcos contributed to driving some CLECs out of business.

Even very large competitors are not immune to the delays that the big monopolies can throw at them. The issues that Google is having in California in getting access to poles shows that even big commercial companies are not immune from the tactics of the telcos and the cable companies to keep them out of their markets for as long as possible.

It’s hard and expensive to fight the incumbents. This short blog barely touches the many tactics they use to thwart competition. They have flocks of lobbyists in DC and at the state level. They make big political contributions and have many allies from statehouses down to city councils. And they don’t seem boldly lie if that might convince a politician to vote their way. There is no question that they are a formidable foe and have proven very good at protecting their monopoly and duopoly markets.

The Rural Exemption

FCC_New_LogoI was recently surprised when I saw a small telco in Minnesota invoke the rural exemption. This is a set of rules that was created by the Telecommunications Act of 1996. In those days the rural telephone industry had an effective presence in Congress and this was added to that legislation as a protection for small rural telephone companies.

The Act created CLECs and made it possible for anybody to create a competitive telephone company and compete against the incumbent providers, who were all heavily regulated monopolies at the time.

The purpose of the rural exemption was to provide a pause in the process of allowing a competitor telephone provider into rural markets. The big fear was that there would be markets where a competitor would come in and cherry pick the market and make the remaining company unviable. This was a real concern. For instance, I had one client at the time that made over 60% of their revenues from one very large factory. They didn’t think that if they lost that factory as a customer that they could remain viable and continue to serve everybody else. Their fear was that competition would wipe out the only telephone company in their small community.

This was a legitimate fear. But it turns out the rural exemption was not really the right answer to their problem. It became quickly obvious that they would eventually lose that customer and that the rural exemption wouldn’t really protect them. So I helped that company to branch out into the surrounding towns to offer their own competitive product. They needed to have a customer base that was big enough to survive losing the big factory.

And sure enough, it worked. They lost that factory as a customer a few years later when a competitor offered cheap broadband to the factory that they couldn’t match. But when they lost the factory they didn’t fold. In fact, they are doing better today than they were before they lost the big customer. They beat competition by becoming competitive themselves.

In the 90s there were a number of small companies that invoked the rural exemption. This forced the the state regulatory commission to have a formal hearing before allowing in a competitor. The small companies were in the unenviable position of having to argue that competition was bad for their community. And as you might guess, I don’t think a small company ever won a rural exemption case and the competitors were always granted the ability to serve their markets.

Over the next decade there was a huge increase in competition in the rural areas as cable companies got the technology that allowed them into the telephone and data business. Competition from the cable companies was so inevitable that almost nobody wasted the legal fees needed to invoke the rural exemption. And I think that after enough of these cases were filed and always lost I think small companies got the message that being against competition sent the wrong message to their customers. There were still a few rural exemptions invoked into the 00s but most of these were nothing more than a feeble attempt to keep competitors at bay for a few extra months.

It’s possible that there have been some cases filed in the last few years that I missed, but I can’t recall having heard of a rural exemption being claimed for many years. The law is still on the FCC rulebooks, but it’s obvious by now that every regulatory body is pro-competition. There is basically zero chance of a rural telco convincing a regulator that they should be exempt from competition. Particularly since the rural exemption only looks at voice competition and we have move to a world where it’s all about broadband.

This current case is a perfect example of why the rural exemption ought to be obsolete. The competitor in this case is a new cooperative that is building gigabit fiber optics to everybody in the community including the farms. The farmers in this area either had very slow DSL, or if they were too far from town they had no broadband at all other than dial-up or satellite. The telco that filed the rural exemption has known about this coming competition for at least five years.

This small telco should have taken the same advice I gave my small client with the factory in 1997 – they should have found a way to participate in the innovation. This telco could have taken a lesson from the hundreds of other rural telcos that have built their own fiber to customers. Nobody is going to build a second fiber network in a rural community and this company could have built fiber and ensured their prosperity for decades to come by being the first with fiber. But instead, they now are going to have to go to the state regulatory Commission and tell the citizens of their community why they would be better off without fiber and faster broadband. I’m glad I’m not their consultant or lawyer because I don’t think anybody can make that argument these days with a straight face.

What is Anti-Competitive Behavior?

federal-trade-commission-ftc-logo_jpgThe Federal Trade Commission (FTC) recently clarified a long-standing policy specifically defining, for the first time in history, how it is going to judge anti-competitive behavior.

As a little background, the FTC has always been tasked with enforcing the Sherman Antitrust Act and the Clayton Act. But those laws are aimed at stopping anti-competitive behavior at the national level when a company is stifling a whole market. It has been exceedingly hard to apply those laws to a smaller market or to the actions of a large company stifling only a single tiny competitor.

In the telecom industry there are numerous cases where the large cable companies went after a small competitor, but these small companies have never had any legal recourse. I don’t think there are any examples of a small company using the law to stop anti-competitive behavior by the big cable companies. In every case I have ever worked with, the smaller company has gotten legal advice that it’s almost impossible to win an anti-competition claim against a big cable company.

And that has been a shame since there are cases where the behavior of the incumbents has been egregious. I’ve seen large cable companies cut rates significantly in a market to try to harm a new competitor while jacking up the rates in surrounding communities to make up for the losses in the one market. Those are the kinds of things that monopolies aren’t supposed to be able to do, but there has never been a mechanism for stopping this anti-competitive behavior.

I’m not a lawyer and I don’t know if the new FTC language fixes this problem, but my layman’s interpretation is that it offers hope. Here is how the FTC now defines how it will look at anti-competitive behavior:

  • The commission will be guided by public policy behind antitrust law, namely, consumer welfare.
  • An act or practice challenged by the FTC must cause or be likely to cause harm to competition or the competitive process, while taking into account related efficiencies and business justifications.
  • The commission is less likely to challenge acts or practices on the sole basis that they constitute unfair competition if the Sherman or Clayton Acts would be enough to address them.

It’s the second bullet point that I think holds out hope. It’s clear that the actions of large companies can cause harm to competition and the competitive process, and this makes it clear that the FTC feels they have the right to oversee such practices. As that second bullet also notes, sometimes small competitors get crushed inadvertently when a large company implements a nationwide practice for efficiency or business reasons. The FTC is not likely to tackle those cases, but should be open to investigating cases where a large company specifically goes after a small company in one market.

The timing of this is interesting for our industry. For many years the place to take a complaint against a large cable company would have been the FTC since the FCC didn’t regulate the cable companies as carriers. The FCC has regulated cable practices and requirements for being a cable company, but not issues like anti-competitive behavior.

But recently, with the changes coming from the net neutrality rule, the FCC has turned the cable companies into carriers under its jurisdiction. The FCC has always heard complaints from small telephone carriers against the larger telcos, so perhaps now the FCC might also be willing to entertain complaints from small cable providers against the larger cable companies.

It would be ironic that now the FTC is willing to perhaps hear such anti-competition claims that they might no longer hold the jurisdiction over the cable market. Those two agencies are certainly engaged currently in an arm-wrestling match over this issue and it might take a while to figure out which agency would be the one to take an anti-competition claim.

The Big City Bandwidth Dilemma

Seattle-SkylineSeattle is like many large cities and they badly want a gigabit fiber network everywhere. They were one of the earliest cities to want this and they hired me back in 2005 to try to find a way to bring big bandwidth to the city. They still don’t have fiber, and they recently commissioned another study to see if there is a solution available today.

The study concentrated on the cost of bringing fiber everywhere and about how the City might be able to pay for it. After all, no city wants to build fiber if they don’t reasonably believe they can make the payments on the bonds used to pay for the fiber. The report shows that it’s very hard for a large City to justify paying for a fiber network. And this highlights what I call the big city bandwidth dilemma. Should a City just wait to see what the incumbents do and hope that they eventually get gigabit broadband, or should they be like Seattle and keep pushing for a solution? There are two major aspects of the dilemma that every city is wrangling with:

The Incumbent Response. If a city does nothing they may never get fiber, or they might get fiber to some of the ‘best’ neighborhoods, but not everywhere. We see that in markets where somebody other than the incumbents brings fiber that the incumbents immediately step up their game and offer fast speeds. There is no better evidence for this than in Austin where both AT&T and Time Warner quickly announced much faster speeds and competitive prices to offset Google’s entry into the market.

But everybody understands that the incumbents in Austin would not have increased speeds absent any competition, as can be seen in their many other markets. This create a huge dilemma for a city. Should they decide to build fiber alone or with a commercial partner, that new venture will be met with stiff competition and will have a hard time getting the needed market penetration rate to ensure financial success. But should the city do nothing – then they get nothing.

Citywide Coverage. In large cities almost no commercial builder is willing to build fiber to every neighborhood. One doesn’t need a crystal ball to look at the consequences of this in the future. A city will become a patchwork of fiber haves and have-nots. The have-not neighborhoods probably already have some poverty and blight, but if they get walled off from having the same broadband as everybody else, then over time they are going to become even more isolated and poor. Every city that has Google coming to town is so thrilled to have them that nobody is looking forward ten and twenty years to imagine what will happen to the neighborhoods without fiber.

Cherry Picking. Google is selling a gigabit for a flat $70 per month. While that might be cheap for a gigabit it is still a cherry picking price that is too expensive for most households. It’s hard to imagine more than 30% to 40% of any market being willing to pay that much for broadband. A large number of homes settle for something slower, but that they can afford.

And almost every other gigabit provider charges more than Google. For example, CenturyLink is now selling a gigabit in some markets at $79.95—but in order to get it you have to buy a $45/month phone plan. Before taxes that means it will cost $125 per month to get the gigabit. I can’t see that Comcast has a gigabit product yet, but earlier this year they came out with a 2-gigabit fiber-fed product priced at $300 per month.

The problem with cherry picking is that it also creates a market of haves and have-nots. The incumbent cable company may not like the competition, but they know they are still going to be able to sell over-priced bandwidth to the majority of the market. Look at how Comcast has fared against Verizon FiOS and you will see that, while they hate competition, they still fare quite well in a competitive market.

A Possible Solution? The Seattle report did suggest one solution that could make this work. Cities not only want fiber, but they want fiber everywhere and at prices affordable to the vast majority of their citizens. Any city that can accomplish that understands that they will have a huge competitive advantage over cities without affordable fiber.

The report suggest that Seattle ought to ‘buy-down’ the retail rate on a gigabit by paying for some of the network with property taxes. This is not a new idea and there are a few small cities that have financed fiber using this solution. But nobody has ever tried this in a large city.

The report suggests buying the price of a gigabit down to $45 per month, a figure that is not cherry-picking and that a lot of homes can afford. That kind of price certainly would put a whole different set of competitive pressures on the incumbents. I can imagine them screaming and probably suing a city who tries this. But if this was done through a referendum and people voted for it, almost no court will overturn a vote of the people. I don’t know if this idea can work in a large city, but it’s the first idea I’ve heard that deals with the issues I’ve outlined above.

Shrinking Competition

1854_gold_dollar_obvI bet that the average person thinks that telecom competition is increasing in the country. There are so many news releases talking about new and faster broadband that people probably thinks broadband is getting better everywhere. The news releases might mention Google Fiber or talk about 4G or 5G data and infer that competition is increasing in most places across the country. But I travel a lot and I am pretty certain that in most markets broadband competition is shrinking.

There are a few places getting new fiber. Google has built a few cities. CenturyLink has woken up from the long sleep of Quest and is building some fiber in some markets. And there are a handful of municipalities and other companies building fiber in some markets. This is bringing faster broadband to some cities, or more accurately to some neighborhoods in some cities since almost nobody is building fiber to an entire metro market. But it’s hard to say that this fiber is bringing price competition. Google has priced their gigabit fiber at $70 per month and everybody else is charging the same or more. And these big bandwidth products are only intended for the top third of the market – they are cherry picking products. Cities that are getting fiber are mostly not seeing price competition, particularly for the bottom 2/3 of the market.

But in most markets in the US the cable companies have won the broadband battle. I’ve seen a surveys from a few markets that show that DSL penetration is as low as 10% – and even then at the lower speeds and prices in most markets – and the cable companies serve everybody else.

It seems the two biggest telcos are headed down the path to eventually get out of the landline business. Verizon stopped building new FiOS and has now sold off some significant chunks of FiOS customers. It’s not hard to imagine that the day will come over the next decade when they will just quietly bow out of the landline business. It’s clear when reading their annual report that the landline business is nothing more than an afterthought for them. I’ve read rumors that AT&T is considering getting out of the U-Verse business. And they’ve made it clear that they want completely out of the copper business in most markets. And so you are also likely to see them start slipping out of the wireline business over time.

I can’t tell you how many people I meet who are convinced that wireless cellular data is already a competitor of landline data. It is not a competitor for many reasons. One primary reason is physics; for a wireless network in a metropolitan area to be able to deliver the kind of bandwidth that can be delivered on landlines would require fiber up and down every street to feed the many required cell sites. But it’s also never going to be a competitor due to the draconian pricing structure of cellular data. It’s not hard to find families who download more than a 100 gigabits during a month and with Verizon or AT&T wireless that much usage would probably cost $1,000 per month. Those two GIANT companies are counting on landline-based WiFi everywhere to give their products a free ride and they do not envision cellular data supplanting landlines.

Broadband customer service from the large companies has gone to hell. The large cable companies and telcos are among the worst at customer service when measured against all industries. This might be the best evidence of the lack of competition – because the big carriers don’t feel like they have to spend the money to be good. Most customers have very few options but to buy from one of the behemoths.

We were supposed to heading towards a world where the big telcos built fiber and got into the cable business to provide a true competitor to the cable companies. A decade ago the common consensus was that the competition between AT&T and Time Warner and between Verizon and Comcast was going to keep prices low, improve customer service, and offer real choices for people. But that has never materialized.

Instead what we have are the cable companies dominating landline broadband and the two largest telcos controlling the wireless business. Other competition at this point is not much more than a nuisance to both sets of companies. We see prices on broadband rising while broadband speeds in non-competitive markets are stagnating. And, most unbelievable to me, we’ve seen the US population replace a $25/month landline that sufficed for the family with cellphones that cost $50 or more for each family member. I can’t recall anybody predicting that years ago. It kind of makes a shambles of fifty years worth of severe telephone regulation that used to fight against telcos raising rates a dollar or two.

So I contend that overall competition in the country is shrinking, and if Verizon and AT&T get out of the landline business it will almost disappear in most markets. Even where we are seeing gigabit networks, the competition is with speed and not with price. People are paying more for telecom products than we did years ago, and price increases are outstripping inflation. Make no mistake – if I could get a gigabit connection I would buy it – but giving the upper end of the market the ability to spend more without giving the whole market the option to spend less is not competition – it’s cherry picking.

Competitive Telecom Marketing

Today’s guest blog is written by Mindy Jeffries of Stealth Marketing. She will be writing a series of blogs that will appear here on Fridays for a while. If you want to contact Mindy you can call her at 314 880-5570. Tell her you saw her here!

Welcome to the new world of competitive targeted marketing; a world where you put each of your current customers and potential new customers into a bucket that best describes them. This may sound complicated, but competitive targeted marketing fits easily into budgets because you just manipulate the buckets one by one. What this means is that if you can afford to market to only one bucket of customers this month, you do that.  If you can afford several buckets, then you can market to more. In order to market to all of your buckets over time you have to generate a viable telecom marketing plan.

The first step in this process is to get your customers into the various buckets. To do that you need to put yourself in your customers’ place and examine the choices every customer has sitting at home at the end of your lines. What are they evaluating each month? Since you don’t know what your customers are thinking this becomes a series of riddles as you try to get into the customer’s mindset. And you should have a solution for every riddle. If you can’t answer the riddles posed by some of your products you should be using that product yourself to see it from a customer perspective.

Here are some of those riddles, meaning the questions that your customers are probably asking:

  • How much will this cost?
  • Can I rely on their customer service?
  • What’s best for me – a local provider versus not so local?
  • Programming choices?
  • Who has the channels I love?
  • Are telephone services limited to cell only?
  • How critical is 911?
  • How is reception on the various carriers in your area?
  • What Internet speeds do I need?

As you answer these riddles from a customer perspective you have your matrix!  Now, how do you shape the marketing messaging to compete against your competitors? In order to figure out how to shape your marketing messaging, you must ask yourselves questions about your products.

For example, let’s evaluate your Internet product. How competitive are the speeds? Usually, speed is where telecom companies can be very competitive. What service has greater reliability during a storm? Which service in your area is back in service quicker after a storm? Reliability is an area that is hard to beat in telecom companies. Ask yourself the hard questions and evaluate your product honestly compared to the competition.

Telecoms own the information channels, but most of us don’t think that way. We derive messaging from the fact that we open the information channels back up quicker when you need it. Still haven’t found your marketing edge? Examine some other aspects.

  • Are there unique ideas for pricing that fit local niche markets?
  • Can you undercut the competition by bundling?
  • Packaging? Buy the fastest Internet and get phone for free?
  • Are there areas you can serve that can’t get Internet any other way, but can get video and phone other places?
  • There are lists available of phone or Internet customers by competitor as well as satellite lists. You can buy those lists and then you can mail just those specific customers with a compelling offer. Show them how you can compete!

Once you form your matrix you can put each of your customers and potential customers into a bucket. You then decide what product you are going to offer them at which compelling price and how are you going to tell them what you have to offer by which medium.