billso.com

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.

Meg Whitman, eBay’s CEO, is stepping down after a brutal year for the company. The New York Times reports that John Donahoe will be promoted from president of the Marketplace division, and will assume his new role on 31 March. The Times ran a story about Donahoe on 21 February 2007.

It has been a brutal year for eBay. The company’s stock price has dropped by a third in the last 90 days. The e-commerce sector continues to grow, but eBay’s market share is shrinking. This interview published today by Reuters, Donahoe claims that eBay will rebound in a recession as casual sellers return to eBay to earn additional income.

eBay’s acquisition of Skype has been a disappointment, even with an additional 30 million subscribers in the last quarter of 2007 – see IP Democracy for more details. Last August’s outage damaged the VoIP’s service’s reputation and customer standing. In this 2 October 2007 article, I discussed how competitive rivalry was increasing in the VoIP industry. eBay may never recover its investment in Skype.

Another eBay acquisition has attracted attention in Hawaii. StubHub, which was mentioned in this 12 December 2007 article in the Star-Bulletin, became an important secondary market for 2008 Sugar Bowl tickets.

24 January 2008: Here’s an article about Donahoe from yesterday’s BusinessWeek. He’s committed to an eBay turnaround, even if it hurts the stock price. First task: reduce the seller fees. Next: make eBay an easier and safer web site for buyers and sellers. As the New York Times points out, better search tools may be an important part of the second task.

My university office telephone is out of service, along with all the Internet and telephones in 1166 and 1188 Fort Street Mall.

The recent rains and winds have blown our wireless Internet link out of alignment. The system uses a laser to connect the buildings to the university network. Laser systems can handle much more bandwidth than WiFi or radio-based wireless systems, but lasers do need precise, line-of-sight alignment to work properly. Radio systems don’t need line-of-sight.

Because most of the telephones in these buildings use voice over Internet Protocol (VoIP) instead of traditional wired telephone service, so our telephones are as well.

According to an announcement on our extranet, inbound calls are going directly to voice mail.

I keep a Clearwire modem in my bag for these emergencies, so I do have email and Web access in my office. I’ll continue grading the IS 6100 midterms this morning.

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.