So it is not that Easy after all…

Yesterday was a big news day for telecoms and I think I did a fairly good job in blogging about the biggest stories (DT’s new CEO, BT in India, ntl buying ITV). But it seems you cannot keep everyone happy. Christo Kuniewicz of Level 3 has moaned at me today that I did not write about some tiny VMNO that disappeared yesterday in the UK. OK – you got me on that one. But to make up I will try to link this to (1) revenue assurance, (2) why you cannot trust entrepreneurs, and (3) the strategic stuff I blogged about yesterday.

Easymobile, the UK VMNO with 80,000 subscribers announced yesterday it will stop providing service within a month http://news.bbc.co.uk/1/hi/business/6145628.stm. TDC, the Danish network licenced to use the “easy” brand in the UK will pull the plug on 13th December. The motivation behind TDC’s decision is obvious – it will invest in activities where it can actually make some decent money. But whilst the news is full of reassurance that customers will be fully refunded for any excess credits, the question in my mind is who is going to make sure this really does happen?

Anyone with a passing knowledge of revenue assurance might suspect that a business closure would be just the time for a meltdown in handling customers and correctly managing customer accounts. Even if there are enough employees to sort out the mess whilst handling the deluge of customers that will be trying to get in touch, there is no guarantee that these employees will feel motivated to do their job properly because some of them will be more worried about their next job than their current one. Unfortunately, the extreme over-regulation of billing accuracy in the UK also manages to provide no meaningful protection to any of those 80,000 Easymobile customers. When confronted with a choice in 2001 about whether to implement broad and simple controls over the whole industry very quickly, or to implement extremely demanding and deep controls and to roll them out across the industry at a snail’s pace, the UK regulator opted for as slow a process as possible. The last time they did research on the topic, the regulator concluded that 7% of the UK public (after prompting) were aware of the regulations to protect customers from incorrect charging – so presumably Ofcom can be looking forward to 80,000*7% = 5,600 Easymobile customers getting in touch today to find out why they have not been protected so far and asking how they will be protected now. I wonder if Ofcom has a good answer ;)

For those of you not familiar with the British love of self-promoting entrepreneurs, I need to tell you a little about the “brains” behind Easymobile. Stelios Haji-Ioannou describes himself as a serial entrepreneur. I would describe him as a fat Greek man who always seems to be smiling, was born very rich and has got a lot richer by selling things more cheaply than rivals whilst pretending to be a consumer champion. He is very popular because of the success of his low-fare airline, which was very successful in busting up that market. His other ventures, of which there are many, have not been as successful, and often have generated very many complaints despite Stelio’s insistence that he is a consumer champion. But all have a few things in common: they are all called Easy-something, everything tends to be painted bright orange and there are many pictures of Stelios smiling and promising to be a consumer champion and lower prices. Presumably the reason why TDC have pulled out of this venture is that calling giving a phone service the name Easy-mobile, colouring it orange, selling it cheap and having Stelios smile a lot is just not enough to persuade many customers to swap suppliers. Because unlike airlines, Stelios was this time launching a service into a market that was already highly competitive whilst having absolutely nothing new to offer. I suspect that Stelios’ claims in the newspapers that he will find alternative partners to help him relaunch his Easymobile brand will come to nothing. If he had an alternative partner he would have lined them up already, and I cannot see why anyone would want a partner whose best chance at growth is through cannibalising revenues on the same network. So Stelios, the self-styled consumer champion, has let his customers down by promising them services he could not deliver. Lucky for him that nobody is looking over his shoulder to check if he keeps his other promises to pay everyone back promptly. Stelios kept pointing out in the news he was intending to sue TDC. So that explains how he intends to make some money out of this mess – but I am not sure how this helps his customers or makes him more likely to keep his promises :|

All of this must come as a relief to Orange, of course. After getting mighty upset and probably paying big fees to its lawyers, it seems they will not be needing to continue their fight with Stelios over whether Easymobile is allowed to use the colour orange as well :)

I had the misfortune to hear Stelios speak on the topic of telecoms once. It was unfortunate because the man obviously knew nothing about telecoms. Please understand this point carefully. It was not just that he knew nothing about how telcos worked – lots of telco execs know nothing about how telcos work. Energis recruited a team of execs because none of them knew how telcos worked, and the Cable & Wireless board thought that was such a good idea they recruited the same bunch at the cost of buying the whole of Energis (presumably the C&W board thought it would be too hard to get random people who knew nothing about how telcos worked and wanted to pick a team within a proven track record of not knowing how telcos work). The C&W share price has gone up since so obviously shareholders agree that not knowing how telcos work is the way forward. So not knowing how telcos work is not what I am complaining about. Stelios obviously knew nothing about telecoms at all. I mean, he had nothing to say on the topic at all, not even about strategy or a marketing vision or something like that. I mean literally nothing. He must be a very eager salesman to have the guts to get in front of an audience of thousands of telco workers when all he has to say is that he likes running businesses, he is keen on the colour orange and was going to beat Orange if they went to court, he has been very successful running an airline and wanted a show of hands on who had flown to the conference on his airline – that kind of thing. Even then, he only had material for half of his slot, kept making excuses that he would need to leave early and ended up taking questions from the floor to fill out the remaining time. Not surprisingly most of these questions had something to do with why people were at the conference – telecoms. And not surprisingly he was unable to answer the questions. My advice is never ever go to a TeleManagement World conference on the strength of the speakers they get. You get some boring techie people and you get some boring sales people but never anyone worth listening to. Apart from when I speak, of course ;) Anyhow, Keith Willetts deserves to be shot for trying to sell conference tickets on the strength of that Stelios speaking at TeleManagement World Nice earlier this year. I thought the point of TeleManagement World was promoting lean operations for sustained results. A few months on, and Easymobile has taken lean to a new level – by not even existing :)

The good news for Easymobile customers is that they have the option to switch to Carphone Warehouse’s “Fresh” mobile service. I have no idea why this option is preferable to swapping to any other supplier, but that is what Easymobile are offering anyhow. In the notes provided to Easymobile customers it says that they will be able to migrate customers to Carphone Warehouse, but they only promise to “do our best” when it comes to porting to another provider. Hopefully their best is enough to comply with their obligation to do so – so why pretend they are doing the customer a favour when the regulator compells them to do this? :| But those customers that do migrate to Carphone Warehouse had better be on guard. Because if a mistake is made whilst transferring the account balance, nobody will be checking because – you guessed it – Carphone Warehouse’s Fresh mobile is not covered by the UK regulations on charging accuracy either. On top of that Carphone Warehouse also fails to comply with the UK regulation on comparable indicators. This means they fail to provide the public with 5 simple measures of performance, one of which – can you guess? – is the number complaints they get about the accuracy of billing :| On the plus side, the good people at Carphone Warehouse are at least sane. They kindly pointed out earlier this year that the charging accuracy expectations in the UK were nonsense – take a look at pages 3 and 4 of this: http://www.ofcom.org.uk/consult/condocs/metering/responses/cpwh. I am glad they are sane, because they are in for a big challenge. On top of migrating a lot of extra customers in a short period they were already planning a UK£30m project (US$57m) to consolidate their billing – see http://www.financeweek.co.uk/cgi-bin/item.cgi?id=4501&d=11&h=24&f=254.

So coming back to yesterday’s topic, the question remains whether you can make good money by selling telcos like a commodity. If anyone is able to do it, it should be Stelios. His entire Easygroup is predicated on the idea of selling basic no-frills services to a mass market and making a profit by keeping costs ultra low whilst beating competitors on price. But despite the very high public recognition factor for Stelios, and his personal popularity as one of the best recognised and most loved businessmen in Britain, his low-cost mobile offering simply never got any meaningful market penetration. And his failure may well discourage some of the other unrealistic marketing plans being dreamt other by other businesses wanting to turn a fast buck from leveraging their brands as virtual operators. Even the most successful virtual network in the UK, Virgin, got bought by ntl more because of their overall value as a brand (compared to ntl’s dismal reputation for poor customer service) than because of the relatively low number and value of customers they had actually signed up. That is why ntl are intending to spend again and buy a TV network. In Herzberg terms, good customer service, good brand etc is just hygiene – you need content to really motivate customers to move in large numbers or to remain loyal in the face of cheaper competitors. In contrast, DT have been using mobile as a cash cow for a long time now, without worrying about the inevitable erosion to their market from the entrance of players who can offer a lot more than commodity communications. Promoting the head of T-Mobile to CEO just shows how short of ideas they are. If DT’s play is to be best at offering a commodity, the question remains as to how they will compete with those who opt for vertical integration. To take another example, 3 are incredibly cheap, and have taken the ultimate step in selling voice as a commodity – to the point of paying customers a share of the revenues they receive from call termination – but they also earn very high ARPUs because they sell so much additional content. So the question for all businesses right now is whether they intend to make money from just being a commodity provider, or will offer the commodity as a loss leader and instead try to make money from selling the extra content on top. Remember, if there is ever insufficient competition, then the price of communications is regulated in a way the price of content never will be. The problem for those providers that go down the commodity-only route, is how to adapt their strategy when their rivals can afford to charge rock-bottom prices for commodity products because they have the vertical integration to make their real money from the selling of additional content. Every time the commodity-only providers cut their costs, they will be in danger of destroying their value through poor service, damaged reputation or direct loss of revenues. So if your only advantage is cutting costs, it means balancing the returns of the business on a razor’s edge.

Eric Priezkalns
Eric Priezkalns
Eric is a recognized expert on communications risk and assurance. He was Director of Risk Management for Qatar Telecom and has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and others.

Eric was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He was a member of Qatar's National Committee for Internet Safety and the first leader of the TM Forum's Enterprise Risk Management team. Eric currently sits on the committee of the Risk & Assurance Group. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.

Commsrisk is edited by Eric. Look here for more about Eric's history as editor.