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For Sale - Why Australia's telecommunications model fails

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Does anyone have a sense of déjà vu?

 

From mid 2007 to early 2009, the Telecommunications Industry Ombudsman (TIO) received an increase in complaints from consumers of more than 40 per cent. More than a third of the complaints to the TIO were related to poor customer service or complaint handling experiences. As a result of this increase in dissatisfaction with service delivery, the then Ombudsman, Deirdre O’Donnell, implemented the “connect.resolve” campaign to encourage the telecommunications industry to “re-focus on customers and their experiences.” At the start of the campaign in 2009 the Ombudsman was receiving 20,000 cases at all levels each month. By early 2010, this number was still high, but had dropped to 16,500 per month.

 

In research conducted by the Australian Communications Consumer Action Network (ACCAN) in November 2010, they found that 38 per cent of Australians had experienced a significant enough problem with their telco that they complained directly to their provider, and that one in three customers were dissatisfied with the outcome of their complaint.

 

And on Tuesday, 18 January, in the shadow of current consumer dissatisfaction with Vodafone’s mobile network, the Australian Media and Communications Authority (ACMA) released its fourth report into the state of Australian Communications and Media, which included a review of the current business models in the Australian communications sector.

 

In its summary of the mobile market, ACMA reported that mobile data revenue had increased by between 21 to 43 per cent during 2009/10 for the three major carriers, Telstra, Optus and VHA (which operates the Vodafone and 3 brands in Australia).

 

But the most telling statement is actually at the beginning of ACMA’s summary of the sector, and perhaps goes to the heart of why 20,000 consumers have signed up to a class action lawsuit against Vodafone, why franchisees fear going to work, and whywww.vodafail.com has been able to give ACMA and the ACCC a document summarising complaints from 12,000 Vodafone customers.

 

After stating that fixed-line services are facing a decline, ACMA goes on to say that “the challenge of shifting customers to higher-value data and content services remains a core focus, with the industry coming up with more innovative strategies to drive demand for these services.”

 

This statement, by the authority that is responsible for regulating the Australian communications sector, highlights a significant conflict with the current telecommunications business model, and with telecommunications policy in general.

 

On one side you have an industry experiencing extraordinary sales growth, whose major focus is to drive demand for new products, while on the other side you have Australian consumers who simply want a communication service that does what they are told by salespeople it should do.

 

What we are seeing in the communications sector is an example of a commercial sales philosophy pushing up against what many people consider a utility.

 

And this sales-driven culture is at the core of the telecommunications model. In a media release last week to announce the appointment of two new Telstra executives, CEO David Thodey was definitive, “Today’s appointments are part of a series of changes Telstra will continue to make as we adapt to new market opportunities… and build a sales and marketing-led culture.”

 

A sales model is essentially driven by outcomes at the point of purchase. It is about getting consumers to the purchase situation. When performance is measured by sales figures, marketing strategies, whether intentional or not, become focused on driving demand for products because these sales increase direct revenue, rather than “post-purchase” factors such as general service delivery and technology maintenance which will be seen as a cost. Some of the tactics used to drive consumers to a purchase include sponsorship of major events, public relations, advertising, and price promotions, because they are focused on brand differentiation and creating demand.

 

The telcos will argue that it is in their longer-term interests to provide good service after the initial sale, because consumers will punish them if they don’t. But if a business model is based around driving demand and constantly selling new products, then customer service and delivery factors in the entire sector will always lag behind strategies designed to meet sales objectives.
 

That said, a sales-driven approach isn’t necessarily a bad thing. Ask anyone who has sat in an introductory marketing class, and they will tell you that a sales philosophy can be a quite useful approach to get rid of excess stock and increase short-term profits – just look at the prevalence of Reject and $2 Shops to see that creating demand through a sales approach can be a successful strategy.

 

But Telstra, Optus, and Vodafone (along with iiNet and a whole bunch of smaller providers and ISPs) aren’t in the business of selling Potpourri and bath bombs.

 

It is now virtually impossible to participate in the Australian community without access to the Internet or a mobile phone. Government services are being pushed online, public telephone boxes are a rarity, and the growth of smartphone technology has meant that consumers who aren’t connected, are being left behind. Despite what the scoffers say, mobile telephony, the internet and even smartphones offer more than games and downloads of cute cats and pandas; for many Australians, including those that are isolated or vulnerable, it provides a means of staying connected and informed.

 

What this means is that like water, electricity and gas, communications now has to be considered an essential service. And government has to view communications through the eyes of all users, rather than purely through the commercial needs of business. Policy has to reflect upon the consumer’s experience, and the role of the regulator is to serve the best interests of the broad Australian community, rather than focusing purely on needs of the market.

 

ACMA have fallen into a common trap amongst regulators – their understanding of the sector in which they are developing policy is viewed, at least in the first instance, through a commercial prism.

 

Vodafone are currently bearing the brunt of frustrated customers, whose experience of the network is not living up the promises in their marketing and selling programs. Clearly, they are desperate to allay consumer concerns, but for many the reaction has been slow, and customers and their competitors are punishing them big time.

 

But the key question has to be how is it that any of the players in this sector could allow this to happen?

 

Again?

 

Unfortunately, while the telecommunications business model is focused on short-term, sales driven outcomes, and the regulator accepts this as the status quo, don’t expect much to change.

~

This piece was accepted for publication by ABC Unleashed on 27 January 2011.

 

 

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