If you're a Charter Communications Inc. (Nasdaq: CHTR) cable customer in my Fort Worth neighborhood, Charter really wants you as a phone customer. But AT&T Inc. (NYSE: T) wants you even more.
Charter high-speed Internet customers were tempted last week with an offer worth phoning home about: unlimited local and long-distance calling for $19.99 a month. Twelve months later, the price creeps to $39.99 a month.
It made phone service through a cable company sound attractive (no equipment to buy, no installation costs), non-restrictive (calls to Canada and Puerto Rico were included), and inexpensive.
Soon after, AT&T countered with a phone/data budget play of its own – a basic local phone line (no long-distance calling included) for $13 a month. And that price was permanent, the company said. Also advertised was a basic DSL service (384 Kbit/s to 1.5 Mbit/s downstream; 128 Kbit/s upstream), that could be bundled with the basic phone line for an additional $14.99 a month.
The basic DSL price wasn't permanent. After 12 months, it would go up to $19.99 a month. But AT&T's rep made the point that if a customer made it clear that they were switching from a cable-based service, the carrier would deliver the first three months of service at no charge.
So, AT&T is willing to settle for getting about $135 out of a new DSL customer for the first year. In 2004, the same speed of service typically ran a new customer about $420 a year – $19.95 for the first three months and $39.95 thereafter.
Both Charter's and AT&T's offers are interesting because they do what's becoming very popular in consumer bundling: They offer a big discount, and time-specific terms, to new customers. Once the honeymoon is over, the rates go back up, and, again, customers are tempted to change providers. (See LR Poll: Bundles Begone!, Costly Cable, and Telco vs Cable: The Rematch.)
Is that so wrong? Well, it could be. Business experts say that when companies get in the game of low-balling each other just to get some new customers, it eventually erodes the value of the services they sell, and everyone loses.
"You're attracting the wrong kind of customers," Bill Cron, a marketing professor at TCU's Neeley School of Business, says of these bottom-feeding bundles. "And that's potentially destroying the industry."
While cable and phone companies scour the Earth for deal-hunters, the barons of bundling aren't rewarding existing customers for years of loyalty. "Everybody expects something extra for being loyal," says Cron. "Yet, in some of these programs, all you get for loyalty is that you're charged more."
Is there a way out of this?
The argument for bundling is supposed to be that buying more things from one company makes it harder for customers to leave. And not having a bundle of services can be detrimental, too, because it can hamper a firm's ability to compete. (See Vonage: Burned by Bundles.) But the communications biz is so cut-throat that phone and cable companies have little choice but to try and attract each other's bottom feeders to replace the loyal, more profitable customers that finally leave after years of neglect.
TCU's Cron contends that the net margins of telecom providers are so razor thin that they can no longer afford to provide the kind of service that makes people into loyal customers in the first place. "The industry went down a path that it now can't get out of," he says.
Scott Clavenna, chief analyst at Heavy Reading, wrote a while back that technology is only the first battlefield where the phone and cable companies square off. "The real challenges lie in the marketing, the fulfillment, the brand recognition, and customer faith," Clavenna wrote. (See Video Over Déjà Vu.)
While carriers face those "real challenges," we'll chronicle their successes and failures in this space during the coming months. In the meantime, send us your best bundling deals, your junk mail, and your customer loyalty horror stories so we can get a good discussion going around whether bundling will help the industry stay afloat or if it will choke what goodwill it has left.
Yes, you are correct that there are two questions.
Answers:
1 - It is up to them. Businesses do lots of things. Some of them make sense, others are New Coke.
2 - The second bit is a social issue unrelated to the first. Your opinion is one of 300 Million and is noted. My opinion is one of 300 Million and is noted.
You haven't posted much in the way of facts. It all started when I asked for hard numbers that were audited. You then posted VZ's pro forma homes passed numbers that don't even align with their own claims of take rate. Nobody is auditing those numbers and nobody will be prosecuted for fraud if they are invalid.
Then you suggest VZ is an asset because they'll drive TV prices to marginal cost to distribute a bit and improve customer service. Anybody who has worked with the phone companies and looked at their cost structures can figure out this is very unlikely.
You then suggest broadband isn't important to society. Or if it is, that it's not VZ's responsibility to advance society. VZ's only responsibility is to sell communication services for hire. Try reading Sidenberg's speeches and see if that aligns. Either he is full of shit or you are.
Then you say nobody is doing anything but heckling, but conveniently ignore the fact that VZ has been instrumental in putting up the barriers making it illegal and costly for people who really care about improving society to actions to do so.
Brookseven --------------- agree it is a set of priorities. The priorities of society are not assured to be in line with those of Verizon.
This has little to what Verizon wants to accomplish. That is interesting, but not greatly relevant to the discussion.
I personally believe that a huge broadband rollout is a waste of money. But that is me. I am simply pointing out that there are two different things going on. One is what is best for society, another what is best for the carrier. This can just as easily be a social debate as it is a business debate. For example, many here have advocated the seizure of all local access lines by the US government. Then the government rolls out fiber access. It is a way to go. ------------------------ I'm missing your point. It seems that there are two questions: 1) Should the telcos and MSOs roll out big broadband networks to offer triple play services over swaths of their footprint, where there is a business case?
and
2) What about the swaths of footprint where there is no business case, because the area is too expensive to serve at a break-even price point?
Do you object to 1?
As to 2, my point is that there is no easy answer, and probably no single answer. Funding strategies, institutions and technologies that will be right for the bread basket probably won't work for Appalachia or depressed urban cores and vice-versa. My other point is that at this point in time, big broadband is more of a luxury than a necessity, so solutions that don't develop locally can wait behind a whole list of more urgent public policy issues.
I agree it is a set of priorities. The priorities of society are not assured to be in line with those of Verizon.
This has little to what Verizon wants to accomplish. That is interesting, but not greatly relevant to the discussion.
I personally believe that a huge broadband rollout is a waste of money. But that is me. I am simply pointing out that there are two different things going on. One is what is best for society, another what is best for the carrier. This can just as easily be a social debate as it is a business debate. For example, many here have advocated the seizure of all local access lines by the US government. Then the government rolls out fiber access. It is a way to go.
heartland.org is a sock puppet group stumping for the ILECs. They don't divulge their sources of funding but it doesn't take a rocket scientist to figure out whose interest they are working for.
when backed into an intellectual corner, rjc yells FIRE in the meeting room. You lost a single point on VZ, and you instantly yell "Jeffery Skilling! Jeffery Skilling!" ...uh...yeah, now (whack whack) let's get this meeting back on track. psst, someone call security, rjc has gotten back into the building....
"re: For all this, [VZ] should be applauded.
So should we for Skilling. At least that what the sock puppets at heartland.org say we do.
re:If I look at the needs of economically disadvantaged areas, I place very low priority on big broadband, relative to more urgent unmet needs.
Nice excuse. VZ says, "I won't do my job until your community solves their more urgnet unmet needs." Isn't that just grand. My daughter says, "I won't do her homework until the world solves climate change." The teacher says, "I won't teach your child to read until her father gets a job." The doctor says, "I won't do the bypass until you lose 50 lbs."
re: But of course it is easy for those who are doing nothing to heckle and second guess those who are doing something.
Yeah, right. VZ has done a lot for Pennsylvania. Haven't their actions there been grand. That's the way to put rate payer's money to good use. (Meanwhile parts of Asia are delivering 100/100Mbs.)
Telecom Companies Fighting Competition By MARC LEVY, Associated Press Writer Sunday, February 27, 2005
(02-27) 10:47 PST Kutztown, Pa. (AP) --
Two years ago, this small college town thought it was blazing a trail for other Pennsylvania communities when it built a publicly owned fiber-optic network to deliver cut-rate Internet, telephone and cable TV service.
Then, in late 2004, Pennsylvania lawmakers bowed to the wishes of Verizon Communications Inc. and the state's other local phone providers, passing a bill that gives the companies the power to squelch any new forays into telecommunications by municipal governments.
The legislation, prompted by the companies' worries that other towns would follow Kutztown's example, marked the industry's latest victory in a series of similar clashes across the country.
Cities and towns from San Francisco to Philadelphia, viewing access to advanced telecommunications as pivotal to prosperity, are aggressively seeking ways to provide high-speed Internet connections, wired or wireless, for citizens and local businesses.
But telephone and cable TV companies have responded by flexing political and financial muscle at the state level, arguing that government has no business getting into their business.
So far, about a dozen states have passed measures either restricting or banning public sector efforts to deliver telecom services, while similar legislation has been introduced in about a half dozen other states.
And in related battles, Bellsouth Corp. is suing a North Carolina town that is leasing space on its fiber-optic network, while SBC Communications Inc. and Comcast Corp. mailed fliers and ran newspaper ads in Illinois last year to help defeat a three-town referendum on building a fiber network.
Opponents of Pennsylvania's new curb on public competition say they were overwhelmed by a lobbying effort led by Verizon, which has spent millions of dollars in recent years to sway legislators and other state officials and even bolstered its well-connected lobbying team by hiring Gov. Ed Rendell's former campaign manager.
Seven, So, you think its okay that rural markets do not have the same broadband services that their suburban cousins do? How about ghetto communities? Why should people in Appalachia not get the same kind of service available to them? It is a terrible business case is why. That does not mean there is no social issue (see the TVA, REA, RUS and USF as things that happened due to these social issues).
That is the entire point. Should this be a government mandate (with subsidies - perhaps structural separation and the return to RoR carriers) or should we just leave entire portions of the US population behind.
-------------- Depends on your priorities. If I look at the needs of economically disadvantaged areas, I place very low priority on big broadband, relative to more urgent unmet needs. Like maintaining or replacing decrepit schools, retaining and training motivated and inspirational teachers, providing treatment for substance abuse, revitalizing industries to create unskilled and semi-skilled jobs.
As it is, we don't have a social consensus to raise enough taxes to cover those things, never mind subsidized broadband.
I agree that a formula will be needed to help deal with high cost areas, perhaps along the TVA/REA/RUS model, or perhaps as a revitalizaton of USF.
I don't agree that this is the most urgent thing on the agenda.
The blogs and comments are the opinions only of the writers and do not reflect the views of Light Reading. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
To save this item to your list of favorite Light Reading content so you can find it later in your Profile page, click the "Save It" button next to the item.
If you found this interesting or useful, please use the links to the services below to share it with other readers. You will need a free account with each service to share an item via that service.
Digg
Del.icio.us
Reddit
