Customer lock-in

One strat­egy that telecom­mu­ni­ca­tions com­pa­nies have adopted is bundling, or sell­ing a com­bi­na­tion of ser­vices at a reduced price. The goal is cus­tomer lock-in, a sit­u­a­tion in which the buyer is more or less trapped in their pur­chase. In many cases, lock-in hap­pens when the cus­tomer sat­is­fices or com­pro­mises to gain value or con­ve­nience. Cus­tomers might grow dis­sat­is­fied over time, but they are unlikely to leave because alter­na­tive ser­vices are not avail­able, or their per­ceived switch­ing costs are too high.

A vari­ety of US cable tele­vi­sion and telecom­mu­ni­ca­tion com­pa­nies have offered bundling pro­grams. The usual items include tele­vi­sion ser­vice and broad­band Internet.

Com­pa­nies that offer cable modems usu­ally offer these ser­vices through the same “pipe” or con­nec­tion – the coax­ial cable drop found in many homes.

Local exchange car­ri­ers (LECs) offer POTS (tra­di­tional or “plain old tele­phone ser­vice”), and the final con­nec­tion to the home is the famil­iar RJ-11 mod­u­lar phone jack found in most US homes. Some LECs also offer mobile phone plans in their bundles.

Land­line con­nec­tions may be offered through VoIP or POTS, depend­ing upon the carrier’s technology.

Ago­niz­ing over savings

Alina Tugend of the New York Times pro­vided a great exam­ple of this decision-making process in her arti­cle last week. Cus­tomers some­times obsess over lock-in when their friends brag about how much they saved by switch­ing. Yes, lock-in also works well for insur­ance com­pa­nies, too!

In Hon­olulu, Oceanic Time Warner, Clear­wire and Hawai­ian Tel­com each offer bun­dles. Oceanic has a stan­dard cable tele­vi­sion pack­age that includes cable modem ser­vice, long dis­tance call­ing and VoIP call­ing plans. Oceanic staff can con­nect the customer’s RJ-11 tele­phone jacks to the company’s net­work, so cus­tomers can con­tinue to use their exist­ing land­line hand­sets and equipment.

Clear­wire offers broad­band Inter­net ser­vice, long dis­tance call­ing and VoIP tele­phone num­bers through its WiMax net­work. Cus­tomers can hook their land­line phone into Clearwire’s modem. The Clear­wire ser­vice does not require an instal­la­tion visit, but the cov­er­age areas are some­what lim­ited. This arti­cle at DailyWireless.org has sev­eral inter­est­ing dia­grams of busi­ness tele­phone systems.

Hawai­ian Tel­com keeps struggling

The Haw­Tel pack­age includes a POTS land­line, long dis­tance call­ing and DSL. Haw­Tel is still work­ing on its IPTV offer­ing, which has been delayed by imple­men­ta­tion prob­lems. IPTV would let Haw­Tel offer tele­vi­sion ser­vice through the same RJ-11 tele­phone drop used by its land­line and DSL offerings.

As a side note, I hated HawTel’s obnox­ious “Savers Unite” adver­tis­ing cam­paign, and am glad that it has been replaced. Was the tagline a call to action or an insult? It was hard for me to tell. The radio and tele­vi­sion ads rein­forced a stereo­type of the “thrifty local” who clips coupons, hoards travel-size toi­letries and wears old clothes to pay the “price of par­adise”. Then again, tele­com mar­ket­ing cam­paigns usu­ally strive for the “com­mon touch”, in an effort to hold the aver­age customer.

Tele­com bun­dles are sub­ject to a host of Fed­eral, state and local reg­u­la­tions. Pric­ing is often con­trolled by gov­ern­ment agen­cies and fran­chise agree­ments. On 18 August 2007, I dis­cussed HawTel’s naked DSL option, which let con­sumers order DSL ser­vice with­out a voice land­line. Haw­Tel was late to act, as thou­sands of sub­scribers adopted mobile phones and dropped their land­lines. These cus­tomers switched to Oceanic, Clear­wire, or other broad­band Inter­net services.

Cus­tomer lock-in is dif­fi­cult to achieve when com­pa­nies fail to imple­ment their indus­tries’ key suc­cess fac­tors well. On 16 Novem­ber 2006, I dis­cussed HawTel’s billing prob­lems after the com­pany was pur­chased from Ver­i­zon. Mike Ruley never over­came these ear­lier issues and lost his post as HawTel’s CEO ear­lier this month, as I men­tioned on 5 Feb­ru­ary 2008.

Tagged as: broadband, case, customer, DSL, example, Hawaii, Hawaiian, Hawaiian-Telcom, Honolulu, implementation, Internet, iptv, lock-in, lockin, mobile, ocean, process, strategy, technology, telecom, television, Time-Warner-Cable, VoIP