It is common sense that telcos will make superior profits if they charge customers higher prices for the same service… or is it? The internet has revolutionized the way so many products and services are purchased that we may forget the profound impact it has had on markets and prices. Businesses like Amazon and Uber have disrupted markets by becoming platforms that sell:
- very large volumes of products and services;
- for lower prices than rivals;
- whilst setting new standards for transparent pricing.
Could this model be applied to telcos? And if not, then why not?
A UK regulation enforced since February has pushed telcos down this path whether they like it or not. Some may have previously been tempted to fleece customers by constructing deliberately confusing tariff plans. Others neglected to advise customers when their contracts reached an end, with the hope they will keep paying higher rates associated with the finance costs for their handset, even though the handset should be fully paid off at the contract’s completion. Ofcom, the UK comms regulator, responded to these issues by imposing new rules for what they call ‘end-of-contract and annual best tariff notifications’. Put simply, all UK telcos must tell subscribers about the best deals for them. These notifications must be given annually, and whenever the customer nears the end of their contract.
One especially intriguing rule that Ofcom adopted is that telcos must also tell subscribers about prices which are only made available to new customers. This is presumably intended to upset existing customers who were unaware of how poorly their loyalty has been rewarded in the past, prompting them to search for a better deal by switching supplier!
Recommendations about the best tariff are based on the customer’s usage history and the services included in their current package. The response of UK providers to these proposals was largely positive, suggesting that at least some telcos believed that forcing everyone to be transparent would help them acquire new customers. There were some understandable questions about how to determine which really is the ‘best’ tariff for a particular customer, but the broadly supportive response of the industry suggests some were already open to the possibility of generating increased value by helping customers to manage their costs.
I lack the data to reach conclusions, but there are several ways that transparently helping customers to select the best value tariff might lead to improved returns for telcos.
- Increased retention: a customer that feels appreciated and which understands they are already getting a good deal is less likely to shop around for alternatives, or to develop a grudge because they feel they were exploited.
- Reduced bad debt: a higher tariff will not lead to higher revenues if the customer does not pay their bills. Tailoring deals to the customer’s real needs and ability to pay may lead to better cashflow for the telco and a reduction in the cost of chasing late payers. The financial distress caused by the pandemic has reminded every business of the risks of taking customers for granted.
- The psychology of saving money: do customers respond to a bargain by being more open to making additional purchases? The opportunities are greatest for multiplay providers who could seek to persuade customers to take a more comprehensive package that includes mobile, broadband, home phone and entertainment services by showing customers that they receive optimal prices for services they already take. Customers might also be encouraged to consolidate the purchasing of services for multiple members of their household.
These questions are close enough to the scope of work performed by business assurance and credit risk teams that they should pique their interest. A zero-sum analysis of the data would calculate the nominal financial loss that occurs every time a customer switches from their current tariff to the best value tariff per their historic usage. A deeper analysis should look at more factors and also estimate the value generated through improved customer satisfaction and the up-selling of services. These are opportunities for risk and assurance professionals to use the data they already possess and their considerable analytical skills to please customers whilst appreciating their real value.
