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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.

Hawaiian Telcom CEO Mike Ruley was dismissed yesterday. His replacement is Stephen Cooper, co-founder or Kroll Zolfo Cooper, a New York City-based interim management firm. Cooper is best known as the Enron’s CEO during the company’s bankruptcy. Today’s Star-Bulletin article has a brief biography of Cooper. Kevin Nystrom, a senior director at KZC, will join HawTel as COO.

While Cooper stated in today’s Honolulu Advertiser that HawTel is not a “distressed company”, it’s now clear that the Carlyle Group is unhappy with their acquisition’s performance. HawTel has lost thousands of subscribers to mobile carriers and Time Warner Oceanic’s VoIP services, leading to US$137 million in financial losses since 2006. I mentioned some of the operational issues on my old blog on 16 November 2006, and last week BusinessWeek discussed how market forces have affected the US telecom industry overall.

The Advertiser noted that Ruley put his Kahala home on the market in early January, which is a possible indication that changes were coming at HawTel. The company has eliminated over 100 management positions since October 2007.

Yesterday, Forbes reported on eBay’s continuing problems with Skype. Om Malik also discussed this development yesterday.

eBay purchased the VoIP company in 2005. eBay CEO Deb Whitman wanted eBays sellers and buyers to use Skype as a real-time communications tool during and after auctions.

eBay management is scrambling to save Skype

It hasn’t worked out well for eBay. The massive Skype outage that I discussed on 17 August gave new entrants and existing competitive rivals more opportunities to convert disgruntled Skype customers. Forbes published an article about the outage here.

… eBay’s stock barely moved on news Monday that Skype’s founder and chief Niklas Zennstrom is leaving and that eBay will take $1.4 billion in charges related to the acquisition in the third quarter. When eBay makes its quarterly report on Oct. 17, analysts won’t expect Skype to contribute more than 5% of the company’s revenues — that’s how much it coughed up in the second quarter, just $90 million…

In our local market, there are several VoIP providers who have targeted business and residential customers. Pacific LightNet, Oceanic Time Warner, and AlohaTone. Google recently purchased GrandCentral, which provides users with a single mainland phone number that redirects incoming calls to the user’s other phone numbers. The New York Times discussed GrandCentral in this 15 March article.

Even the incumbent local exchange carrier (ILEC), Hawaiian Telcom, offers CallWave VoIP voicemail services to cits mobile customers. See this 19 September 2005 Pacific Business News article for the initial announcement.

Meanwhile, one of the best-known national VoIP providers, Vonage, is losing patent-infringement lawsuits filed by Sprint and Verizon. Here’s Malik’s summary from 25 September. Vonage lost its CEO in April, and is struggling to keep customers.

It’s hard to compete when the key success factors in an industry are not in your favor.

According to the Honolulu Star-Bulletin, yesterday’s $1 sale by go! Airlines crashed their web reservation system.

Good managers plan ahead

Jonathan Ornstein, chairman and CEO of Mesa Air, go!’s parent company, complained that “stodgy managements don’t know how to react” to go!’s business plan. Ornstein also said yesterday that their outsourced web reservations vendor, Sabre, wasn’t prepared to handle the unusually heavy amount of traffic during the fare sale.

Go!’s management team should have foreseen this surge in volume, based upon previous fare sales at go!, Aloha and Hawaiian Airlines. Management should have alerted Sabre that their GetThere system would get hammered on Monday, so that Sabre could have additional bandwidth and servers ready for the sale.

Instead, the go! web site was barely accessible until 3 pm HT (Hawaiian Time) yesterday. The airline extended the sale after irate customers bombarded company offices with e-mails and phone calls.

From Yahoo, the Honolulu Star-Bulletin, and the Honolulu Advertiser: Del Monte announced yesterday that the company will shut down its Hawaii operations within the next 60 days, the minimum amount of time allowed by Federal law for a layoff announcement. The layoff affects 551 Del Monte employees.I’ve heard of giving pineapples as a Christmas present, but this seems cruel. Del Monte’s been a part of the Hawaiian economy for a century, and this announcement is another nail in the coffin for Hawaiian agriculture, as more farmland is converted to residential and commercial use.

It’s much less expensive for Del Monte to grow pineapples in Costa Rica, the Philippines and Thailand than Hawaii, mostly because of labor costs. Apparently Hawaii pineapple no longer commands a premium price from consumers.

The company had announced in February that it would shut down operations in 2008. The new date means that the current crop of pineapple, grown on a 5100 acre plot in Kunia, may be abandoned. Pineapple takes three years to cultivate and harvest. Maui Pineapple has asked to salvage the abandoned crop, but Dole may become the only company growing pineapple on Oahu.