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Cable/Video

Bundles of Joy: Playing Lowball

If you're a Charter Communications Inc. 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.

— Phil Harvey, News Editor, Light Reading

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Peter Heywood 12/5/2012 | 3:41:08 AM
re: Bundles of Joy: Playing Lowball A lot of the promise of the technologies we cover on LR - next gen networks etc - aim to shift competition away from price by enabling telcos to differentiate themselves by offering better/different services than the competition.

Obviously, this isn't happening yet in Texas or anywhere else as far as I can see. The telcos appear to be offering the same, limited set of services as everyone else and competing on price.

I was going to write "mindlessly competing" but I changed my mind. Maybe it's just an acceptance that the culture of treating telcos as utilities - the providers of transport infrastructure - is too ingrained in both telcos and customers for anything to change.

Depressing, isn't it?
DCITDave 12/5/2012 | 3:41:06 AM
re: Bundles of Joy: Playing Lowball Some of this could change when more IP-enabled video services are deployed, but for the time being, telcos are just utilities providing the same thing as other telcos and, in rare cases, cable companies.

So they have no choice but to compete on price and I'm not sure that's a good idea over the long run.

ph

fiber_r_us 12/5/2012 | 3:41:06 AM
re: Bundles of Joy: Playing Lowball I would personally prefer the phone company *not* bundle and offer me a "naked" DSL 9or other data service) service at a reasonable price. I don't want bundling, or "new features" from them. They still can't get their voice right! I would far prefer that they be a "dumb" pipe provider and let me choose my services from a set of competing providers. Structural separation makes a lot of sense to me.

Of course, I know, this is NOT what the phone companies want. With all of the consolidation resulting from the BOC's very effective lobbying efforts, they are getting their way, and we are returing to a monopoloy/duopoly.

We, the consumers, are the ultimate losers, with fewer real choices, and continuing horrible services.
fiber_r_us 12/5/2012 | 3:41:06 AM
re: Bundles of Joy: Playing Lowball What's more depressing is that the quality of their customer service appears to be getting worse. I left ATT, SBC, and WorldCom years ago due to billing problems and poor customer service:

-- unhelpful, unknowledgeable call center personnel
-- waiting ungodly amounts of time on hold after touch-toning your way through a dozen levels of menus
-- handed from one group to the next to try to solve basic problems
-- only to be randomly disconnected at some point and starting the whole thing all over again

I swore I would never "go back".

Well, "never" is a long time. Now, after YEARS of waiting, ATT/SBC has finally brought a minimal DSL service to my neighborhood (the plain variety of peak 6Mb/s, not "Lightspeed"). This should be an improvement over my current wireless providers reliability problems.

So, I looked at the new service, and, remembering my poor experiences with them, hesitantly signed-up for the new service. Sadly, I have to say, my new customer service experience was even worse than what I remembered.

In reality, all I really wanted was DSL service. I could care less about ATT's phone service. However, the price for "Naked DSL" is almost as much as a bundle of full-service voice (Local, unlimited LD, VM, etc) and their "Elite" DSL service. One wonders what exactly is being "bundled" here!

To minimize ordering mistakes, and achieve a slight price break, I decided to place my order online via ATT's web site. I chose the "bundled" voice/DSL package and begun to fill-out over a dozen pages of forms specifying the voice services and other info. Once entered, I printed out the resulting list of services/features with the associated pricing.

Next, I attempted to order the DSL service. But, the system wouldn't let me, as it required that I already be an ATT voice customer with a working phone number to order DSL! Ok, so how is a non-ATT customer supposed to "come back" and order any sort of bundle? Fine, I thought: I'll order the DSL after ATT moves my voice service.

Later that evening I get a call from a service rep that stated that my web order had not specified which LD carrier. I know I selected one, and looked at my printed version of the order to verify that I had indeed selected one. The rep claimed he could "fix" the order, and wasn't sure why it wasn't correct to begin with. Once he was through, I asked that he read off which services/features were now on the order and what the total price was. Several things no longer match my original order, and the price had, naturally, increased. I asked him to explain why I couldn't have what I originally ordered, and he transferred me to another group. After waiting about 15-min on hold, the call abruptly ended with a "click" and dial-tone.

So, I called back, waited on hold for another 30-min, got another rep and went through the same discussion, with her claiming that I must pay for a "metro" service to maintaining my existing "metro" number, and that my bill would increase by $22/mo because of this! I said, give me a new "non-metro" number then! Which she claimed she did. Yet, still, my overall order was more expensive than my original quoted number from the web. She attempted to put me "on hold" to talk to someone else, but, disconnected me again!

Calling in again, on hold for 15-minutes, (I had been given no less that four different toll-free numbers that were supposedly the "correct" ones), I finally reached a gentlemen that appeared to have a clue. He was able to restore my original order, with all of the correct services and options, and the price equaled that of my original web request. He had to "un-do" all of the damage the previous reps had done.

I then reminded him that my ultimate goal was to get DSL installed; the phone service was merely a (painful) distraction towards that end. I told him the web site didn't let me add DSL service online, because it required a working ATT phone number. He was able to add the DSL request on his system anyway, but the price was higher than the web quote. He admitted that I would get a better price if I used the web site to order. I was turning red at this point, once again pointing out that the web site appears to give a returning customer no way to accomplish ordering DSL.

He finally credited me the difference between to two charges for the year of service.

In all, I spent about 6-hours on the phone/web, simply trying to *place* the order. The service is supposed to be "delivered" this week. I can't wait...

"Welcome back", indeed.
DCITDave 12/5/2012 | 3:41:04 AM
re: Bundles of Joy: Playing Lowball Excellent story, fiber_r_us!

That's exactly the kind of thing folks need to publish more often.

I wonder if muni networks will help encourage service providers to provide better service.

Two other points:

1) I've never used and never met anyone who's been able to provision a communications service of any type via the Web (I mean traditional service -- not things like Skype, etc.)

2) AT&T, when you call to request service, always tells you in a recorded message that "better prices may be found online." So your experience with AT&T's Web site is interesting indeed.

ph
DCITDave 12/5/2012 | 3:41:03 AM
re: Bundles of Joy: Playing Lowball re: "Structural separation makes a lot of sense to me."

It does to a lot of people. I don't think penalizing customers for buying different services at different places will foster any goodwill.

ph
douggreen 12/5/2012 | 3:41:02 AM
re: Bundles of Joy: Playing Lowball I once heard an account manager for the AT&T account asked by the VP of sales to present his/her customers strategy, and how his/her sales strategy meshed with it.

The rep stated: "AT&Ts strategy is that if you have to go out of business, try to do it as slowly as possible. Our strategy is to try to sell them as much as possible before they go away."

New AT&T, same strategy...
jggveth 12/5/2012 | 3:41:02 AM
re: Bundles of Joy: Playing Lowball Are we playing ace to five or deuce to seven?
opticalwatcher 12/5/2012 | 3:41:02 AM
re: Bundles of Joy: Playing Lowball fiber_r_us's story made me laugh! I ran into the exact same situation--I didn't have an ATT phone number, so I couldn't order the bundled service from their web site. You have to have a phone number in order to get a phone number!

So like 'fiber' I called in to order. I ordered the slower DSL service, thinking I could upgrade if it is any good. Big mistake! When I called to upgrade, they said that the higher speed service wasn't available in my area. It was offered to me when I first put in the order!

I remember another Light Reading post a year back, where the guy called to upgrade and they told him that DSL isn't offered in his area. "But I already have DSL!" he told them, to no avail.

ATT is really suffering from big-company-itis.
mgardner750 12/5/2012 | 3:41:00 AM
re: Bundles of Joy: Playing Lowball RJ,

You say "Meanwhile, innovative projects across the US are being choked off by exorbitantly priced broadband services."

Can you elaborate on what innovative projects are being chocked off?

Do you see these projects being deployed in the EU? If not why not? If so, what price points do you think are needed to make them available in the US.

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