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James Lockhart, President and CEO, Telecom Management Inc.

It comes every year like clockwork ― the annual “Happy Holidays! We Need More Money” letter from the insurance company. Actually, they don’t even bother with the Happy Holidays part anymore. They just say, “Since you didn’t sniff your already high deductible or cost us any money at all by using any of our services, then we will be happy to insure you (bill you) again next year and ONLY raise your rates 30 percent. Don’t thank us. It’s just our little Christmas gift to you.”

At first, I was pissed, because every insurance company does this every year and there’s really nothing we, the consumer, can do about it. Then I thought WOW! This is brilliant! It’s just a different business model that I’m not used to seeing.

Telecom has it backwards. We fight harder and harder to give the customer more and more for less and less. Whose plan was that? Electric, gas, cable and even the church got it right. Why not us?

So I have to ask, has deregulation gone too far? Is this current, faulty, industry-wide business plan killing us faster, rather than slower? Is it too late to fix it?

When you think about it, telecom is less than 140 years old, and in the past 25 years we’ve driven long-distance rates effectively to zero. And it looks like we’re doing the same with Internet access and other network filling services too.

Maybe we should apply the health insurance business model to telecom? (I didn’t even go to Harvard.) For customers who don’t require any support, we raise their rates ONLY 20-30 percent per year. For customers who actually bother to call us and need help, we should definitely raise their rates 50-70 percent per year.

I’m not on the carrier side, so I don’t know much about their profit margins. But I do know that if they don’t make a profit, then we’re either out of a job or we do our job and just don’t get paid (the old MCI comp plan). So instead of having multiple agents bidding one carrier against the other on the same project, we need the carriers to unite, be strong and hold some margin on their products and service. After all, our technology solutions allow the clients to conduct their business faster, easier and cheaper. When are the carriers going to try a little less hard to give these solutions away?

And if you have to give it away, then at least tell the customer, “The price is going up next year!”

James Lockhart is president and CEO of Telecom Management Inc. (TMi), a solution-based telecom consulting firm. He serves on the ACC Advisory Board and is a member of the 2008-09 PHONE+ Channel Partners Advisory Board.

User Comments !

I could not agree with James Lockhart's viewpoint more!  Customers can celebrate more service for less money but what is the industry celebrating?  Bankruptcies, forced mergers, flat or declining revenues (if you don't include wireless), declining stock prices, and the list goes on.  Deregulation started a positive trend but the race to zero really came about at the height of the tech boom and while things are more rational today, the few survivors of that era (I won't name names but did someone say Cogent? XO? Broadview?) have that more services for less money in their DNA.  Their enthusiasm for high growth and a bright future (aka, hubris) permits them to keep raising capital and buying companies and yet they never generate cash and their valuations are in the doldrums.  The whole industry needs to raise prices, restore true profitability (not EBITDA-positive) and compete on the merits of products and service, not price - this would result in happier times for all, including customers who would enjoy the resultant investments in better customer care!

Posted by: Joe Gillette | December 18 2008 06:53:52

First of all, unfortunately they cannot "unite" or they may be accused of a little thing called collusion.  Beyond that, I agree with the premise that we need to sell more value.  However, when I look at the landscape of the companies WE represent....most of the major ones in this area.....it would be difficult to sell value with any of them.  They are all understaffed to the point where not enough installations go smoothly (unless you stay on them daily) and they are terrible at troubleshooting problems.  Someone needs to step up and become a truly competent provider and I will sell the extra value all day long.

Posted by: Dante Sabatucci | December 18 2008 08:56:41

Great perspective James, you are right on the money in several respects.  Your 'insurance' perspective however is only part of the story and indicative of an industry with quasi-monopoly power combined with a hands-off regulatory policy.  32% credit card rates and $4.00 a gallon gas are other examples.  Telecom also has had a hands off regulatory policy but some aspects of it, you cited long distance for example, are truly competitive and in a price race toward zero.  This hands off policy has extended however to the major ILECs, which still own the only set of wires into a customer 90% of the time, and which have effectively excluded the competitor from non-POTS technologies, like DSL and Fiber to the Home or small business.  However, I digress. 

The answer for Telecom is to get out of the "value added sand" games and into services that solve real world business problems.  To describe what I mean, I have often used the example of how IBM marketed mainframes in the 1980's:

1.  IBM hit high, with senior executives.

2.   They learned something about the prospect's business.

3.  The IBM proposal went something like this:  (a) here is what you need.  (b) you need four of them.  (c) you know they are expensive and I know they are expensive so get over it, ok?  (d)  what I guarantee you is that if you buy these, THESE SPECIFIC BUSINESS PROBLEMS will go away.  After all, we are IBM.

How many times did we see this arrogant pitch work?  And it was all because of #3 (d) above.  For Telecom to concentrate solely on the value-added-sand component of their offerings (like capacity or price) it is analogous to IBM dropping a mainframe computer off on the customer's loading dock with no software, applications, or even a hint at its business purpose.  How much would that customer be willing to pay for that kind of service?  The same as they pay for telecom today, which is not much. 

By the way, I published this point 15 years ago in a book entitled "Understanding Emerging Network Services, Pricing and Regulation."  And speaking of which, don't tell me regulation is a problem either, because it's not if you do things right.  My co-author on the book was at the time the Chief of Staff to the Chairman, Texas Public Utility Commission.  I have also registered as a lobbyist with regulators in the past to get large users discounts of 1/3 or more and capacity increases of 48x for 1.8 times the cost.  Google Leo A. Wrobel or Eddie M. Pope or check Amazon.com for more info if inclined.  Thanks for a great perspective however James, as you can see you struck a note with me.  What you propose CAN be done with a little effort.

Leo A. Wrobel, President

b4Ci Inc.  http://www.b4ci.com

TelLAWCom Labs Inc. http://www/tlc-labs.com

Posted by: Leo A. Wrobel | December 18 2008 09:27:29