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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.

The Washington Post reported yesterday on allegations that US Customs agents have inspected and confiscated laptop computers, iPods, and mobile phones during passenger inspections. Passengers claim they were asked to provide passwords and open files. In some cases, mobile phones were inspected and returned with purged call logs. One person claims their laptop has been held for an over a year.

According to this article, the Electronic Frontier Foundation and the Asian Law Caucus have filed a civil lawsuit against the Federal Government, based on 20 complaints from Northern California residents. The goal is disclosure of the US government’s boder search policies. One sourse of concern is an apparent pattern of racial profiling, in which agents targeted Asian and Muslim passengers.

The US Department of Justice asserts that electronic equipment falls into the same category as a briefcase, and may be searched and confiscated for inspection.

However, the scenarios described in this article sound more like coercion or out-and-out robbery.

Of course, many corporate travelers have confidential or private information on their computers and phones. The Post article cites a Canadian law firm that sends corporate travelers headed to the United States with “empty hard drives”. There’s an operating system and a web browser on the laptop, of course, but employees access their email and documents through a secure Internet connection such as a virtual private network (VPN). This helps keep confidential data off the drive, as the law firm fears discovery by search more than a hacked Internet connection.

BoingBoing and the Consumerist each had articles about the Post report, although both blogs misidentified US Customs as the TSA.

Sadly, the activities alleged in this lawsuit do not surprise me. BusinessWeek recently reported on Indian IT outsourcing firms that have systematically underpaid IT workers who were brought to the United States on H1-B visas. These workers make tempting targets, as their outsourcing companies can send the workers back home for any reason. By the time some workers determined they would never get their back-pay, they were no longer in the US. It seems that only a few lawyers or client companies will step in to help these guest workers.

Nilay Patel has posted his latest installment of Know Your Rights on Engadget. Today’s subject: why copyright law is so complicated.

Patel discusses the judgment in the RIAA peer-to-peer lawsuit against Jammie Thomas of Brainerd Minnesota. Thomas was “found liable for copyright infringment for sharing music online”, and was ordered to pay US$220,000 in damages, as reported yesterday in Engadget , the New York Times , the Register, Wired and CNET. Thomas claims she will try to pay the award herself, and she will not ask for financial help. Then again, she won’t refuse donations, either. Declan McCullagh posted his comments on CNET, and claimed that the judgment was far too high.

Settle with the RIAA… or else

Thomas had refused an earlier settlement offer from the RIAA. Several defendants have paid the industry organization an average of US$4,000 to avoid a trial.

Federal District Court Judge Michael J. Davis issued a key ruling in the case that tipped the scales towards the music industry. Davis ruled that the record companies and the RIAA did not have to prove that any songs had been transmitted from Thomas’ computer. Thomas had made 24 music files available for sharing, and that act qualified as infringement.

Thomas didn’t help her own case when she gave different answers about her computer’s hard drive. It was obvious that she had replaced her hard drive. The industry lawyers claimed Thomas knowingly wiped out evidence of her file-sharing activities.

The defendant also denied that she had a Kazaa account. Kazaa is a popular file-sharing service. Lawyers presented evidence that a Kazaa username was linked to the IP address of Thomas’ computer.

I do get questions from students about how to download free music and video from the Internet. My usual answer is to find a legal source. There are plenty of sites like LegalTorrents that offer free, licensed music for download. Many artists post free downloads. There’s an unending stream of giveaways and promotions that give users a few free downloads.

Rip your CDs

There are also services that will rip or convert a user’s music CDs to music files. If you bought the CD, you do have the right to convert the songs to digital files, as long as you do not share the files.

I’ve used one service, MusicShifter, to convert most of my CD collection to FLAC files. It took about 2 weeks from start to finish, using USPS Priority Mail. That’s much quicker than ripping the CDs one-at-a-time into iTunes on my own computer.

I could have ordered MP3 files, but FLAC files use a lossless open source encoding standard. This page on etree.org has a good discussion of how FLAC works. It’s trivial to convert a FLAC file to MP3 or another format.

While the Thomas judgment may be overturned or modified, it’s more expensive to download unlicensed music today than it was last week.

Related posts:

• 17 July 2007: A quick explanation of copyright law
• 2 April 2007: EMI to sell DRM-free music on iTunes
• 24 January 2007: More thoughts on cheating, copyright and paraphrasing
• 23 January 2007: Cheating is copyright infringement?

Sports: Kobe’s accuser has filed her civil lawsuit against him. I expect that the criminal case will be dropped in the next week or two.

Sports: After all of the leaks and gaffes by the clueless Colorado legal system, Kobe’s accuser may drop the criminal case and go for a civil suit, according to CBS News. She would probably get a large settlement in a civil case, where the standards for conviction are lower. They would still have to talk about her personal life, though.