Why is Telephone and Cable Service So Bad?

Theodore Levitt, a highly respected business academic who died in 2006, famously scolded railroad companies that were run over by airlines for not recognizing that they were in the transportation business rather than the railroad business, as if this expanded sense of strategic purpose would have moved them to enter the airline business ahead of Pan Am and United Airlines. Levitt was wrong (he was right about some other important topics so may be forgiven for the lapse, but it is a common lapse to which his work may have contributed). Successful, large companies lose business flexibility quickly as they grow; the number of large companies who successfully find a new business equal to the one they have when market conditions start the road to ruin are very few; in fact it is hard to think of one in America. IBM is not its former self, Kodak barely breaths, Xerox is all but dead, the computer companies holding forth before the personal computer are all gone, the communications companies before IP networking are all gone.

Our particular problem may be more easily seen in efforts by so many companies to diversify and fail (the figure is well over 90%). The problem is that companies very successful in the upper end of growth markets or the whole of mature markets tend to be more owned by their markets than control them, their internal practices, training, culture, and leadership conditioned by how their products are perceived, sold, and serviced, which practices and culture cannot be easily changed. Levitt actually gets near this topic when he discusses what makes a product—not what the company thinks but what the buyer thinks, and the buyer often values things that are not even part of the product, like fashion, word of mouth, opportunity, position on a shelf.

What follows from this brief introduction is that company practices and cultures, established over a long time with a history of success, become very difficult to change. Ask any McKinsey consultant about how their recommendations for change are actually implemented, and hence producing the effects projected in their slide presentations. The answer will range from “never” to “not as much as we hoped.” Telecommunications companies operated in a climate of regulated monopolies for fifty years. In that climate service, along with everything else, was a cost, but one never really pressured by consumer prices. It took so many people to keep networks running, answer phone calls, send out service people, or just answer questions, and these costs were built into prices. Then the 1996 Act happened, and all of sudden telecommunications was thrown into the maw of price competition. It was not just natural, but seen as mandatory given market history and the maturity of the market itself, that service remain a cost, not a product, or a significant part of a product. Thus the internal pressures on service are pressures to reduce costs, not improve service. Competitive markets have also increased the difficulties of service, with increasingly complex product ranges and profiles, technology changing more rapidly than service operations can absorb, and the irresistible urge to automate service with all of the unseen and awkward problems such automation naturally engenders.

Why does it take 45 minutes when calling Comcast to finally find someone who observes in the file accessible to anyone in Comcast that the phone service you ordered was assigned to a different modem MAC address, after which observation the file was updated and phone service begun, in about 20 seconds.   Why does it take 45 minutes when calling AT&T to get someone to understand that you need a service technician to come out to your house to connect a line to a new elevator. Most of each experience was spent talking to a robot, a really stupid robot, that kept asking questions you either answered or you knew was irrelevant to your problem, and the old procedure of hitting zero twenty times no longer worked.  When a person is finally reached, you realize that the most important words they learned in training were, “I’m so sorry.” Why, with all their automation (and it is remarkable what they can fix over the phone or remotely), are they still treating customers like captive fools? And why are all of them like this—Comcast, AT&T, Charter, Verizon, Frontier.

Comcast is a $100 billion a year company.  AT&T is a $170 billion a year company. They each spend as much as they can possibly afford on infrastructure every year, creating down-the-road costs against earnings as they capitalize the expense.  While neither have competition in their wireline businesses, AT&T has real competition in its mobile business (now three times the size of its wireline business) and has moved into content and satellite television to diversity in the face of dwindling profits in telecommunications.  Comcast has some competition, although not much (and none in our region), in its Internet service, but is losing customers in subscription television as cord cutting proceeds apace, and has also placed huge bets on content with its ownership of NBC and investment in various streaming services.

So imagine the executive committee review of yearly strategic plans presented by the technical services group.  “We have the worst service rating in the country” declares the opening slide in dripping dark red. An executive immediately asks: “Is it worse than any peer in our business.”  The service group VP says “no” but quickly adverts to his next slide, suggesting service as a business strategy and competitive advantage with his new program. “How much more will it cost, and how much more business will we write as consequence?”  The service VP quivers a bit but shows that a 40% increase in costs, mostly in people answering telephones who speak native English and live within a few states of the service call, could reduce churn by 20%. “Any proof of this?” comes the instant response.  He goes on: “No, but it stands to reason that if people are happy with our service they will be less moved to change suppliers.” “But you are asking us to increase payroll, facilities, overheads, training, and all the complications employees represent for the hope of a few more customers?  George, how many more customers would we get if we could accelerate 5G rollout with the same funds, and not impose costs on the P/L in the process?” George puts down his cinnamon roll and states firmly, “at least twice that number if you give me the money.” That is the end of the proposal to improve service.  The next half hour goes to a grilling about automation and cutting costs.

It is easy to demonize telephone and cable television companies for their wretched service.  But it is very hard to see how the conversation above has a different outcome. The costs to overhaul current service organizations in any direction that would actually improve service would be huge.  As current markets are largely saturated, incremental customer growth would have to come from churn at competitors, which in wireline businesses do not exist for the most part. The CATV companies have no real competition in the northwest corner, hence no pressure to improve when the costs to improve will never produce compensatory revenues.  So in our region Comcast, Charter, and Cablevision are both stuck in the past and have no competitive incentive to change, even if they could, which they can’t.

A new network built from scratch through a new organization not strangled by the past can make service part of its product, the customer a living part of the business.  It goes by the name “disruption” now. We propose just this for a fiber network in northwest Connecticut. Our product line will be simple—symmetric speeds at 1 gigabit, or 100 mbps and 1 gigabit.  Our call center will be local, in Litchfield County. It will be staffed by people who live in or about our region. Calls will be answered by a human being. They will be trained to be part of our product, not a cost but a feature.  It will seem like a new world. Precisely this is happening in similar regions of the country where municipalities have built their own fiber optic networks. With small scale and no history, these networks can treat service as part of its product.  Indeed, many of the these networks have found the best foot forward to the customer is not speed, but local service. Theodore Levitt would approve. Products are what customers perceive them to be, not what the company selling them thinks they should be.  If much better customer service is the prize, and you can actually supply it when your competitor cannot, go for it.

Northwest ConneCT