The Commerce Commission says retail telecoms service will be one of its priorities for the next year.

While the telecommunications industry gets more than its fair share of political and regulatory scrutiny, there is unfinished business.

The Commerce Commission’s timing makes sense. The first phase of the UFB fibre build finishes over the next 12 months.

Soon after that, the pre-5G mobile jockeying will start in earnest. Spark is already making noises about moving to 5G.

In a media statement, the commission says it has “been working to improve its understanding of the retail telco issues faced by consumers”.

Service quality

This year the commission says it intends to monitor areas of service quality including billing, contract terms, marketing and switching between service providers.

The media statement says:

“We also expect to implement new consumer provisions from amendments to the Telecommunications Act, including industry codes to address issues of retail service quality.”

This is in addition to work the Commerce Commission is already doing on the implications of competition and regulation in mobile and fixed line services.

Are we being served

Service quality is something of a black hole in the telecommunications sector.

Improved service quality was one of the objectives of the 2009 reforms. It was just as big an issue then.

At the time Telecom NZ divided into what is now Spark and Chorus.

The planners thought telcos would compete on service quality after the industry separated into wholesale and retail layers. Instead they raced to the bottom on price.

Few if any telco’s offer a high service quality option today. Consumers are free to choose between various levels of indifferent service. They range from near-hostile to grudging customer support.

Little or no service

This has lead to a curious state of affairs.

Telcos offering less formal customer service rank higher in consumer preference surveys.

Spark’s low-cost Skinny brand often rates as delivering better service.

Skinny doesn’t have a traditional call centre. Instead it handles everything online.

Not offering much customer service, means Skinny customers don’t expect much. Their illusions are never shattered.

Of course Skinny targets a particular demographic: mainly young tech-savvy people looking for a bargain.

It’s a market that prefers not to use call centres. Moreover, younger New Zealanders have no recollection of a time when support seemed better.

Agile to the rescue?

Spark is moving to a new Agile way of working. Liam Dann has a great feature on Spark’s Agile project in The New Zealand Herald.).

Agile was originally a manifesto for software developers. One of Agile’s ideas is a focus on satisfying customers.

In the case of software developers, customer usually means whoever pays the bill. It can be an external client. It can also be another division of the same organisation. Consumers are rarely customers in this sense.

It isn’t clear if Spark version of Agile means satisfying consumers. Some of the rhetoric to leak suggests it is. If so, it’ll be interesting to see how this works. It’ll also be interesting to see if it satisfies the Commerce Commission.

Other service issues

The Commerce Commission is also looking at contract terms, marketing and switching.

Switching between providers is now easy. At least in theory. Number portability makes it simple for mobile customers. For fibre customers, switching involves little more than a click of a mouse button on a dashboard.

However, telcos like to tie customers into long contracts. This makes switching harder. In their language this is called customer churn.

Some telcos, Trustpower is an example, offer televisions or fridges to people signing longer terms.

Others, offer the lure of a low starting price for a few months. The small print says customers then pay more for the remainder of, say, a 24 month term.

These deals can end up more expensive that no-contract subscriptions.

Break clause

While most contracts are legal, they’re heavily weighted in favour of the telco. Some have expensive break clauses.

It can be hard to find a service from a name brand that doesn’t come with contract strings attached. This often means angst when customer circumstances change.

Many of the problems with marketing are linked to contracts. It’s rare for many months to pass without another telco pushing the boundaries of responsible marketing.

Both contracts and dodgy marketing remain regular issues for Telecommunications Dispute Resolution. There’s a clear need to beef up protections in these areas. The Commerce Commission is right to worry about them.

Margrethe Vestager, the European commissioner for competition, says the government has to move fast to ensure that tech does not subvert society. Presumably, she means the European government.

“…as it becomes clearer how those companies were used to manipulate the 2016 U.S. elections, Vestager feels validated in her distrust of Silicon Valley’s power…”

The quotes come from a podcast interview. It shows Europe, or at least Europe’s competition regulator, is moving in a different direction to the USA and Asia. On the surface at least, these regions seem more comfortable with power being concentrated in fewer hands.

European market

“We want a free market, but we know that the paradox of a ‘free’ market is that sometimes you have to intervene. You have to make sure it’s not the law of the jungle, but the laws of democracy that works.”

Vestager said her commission will continue to focus on preventing large tech incumbents like Google from stifling competition from startups. She also has misgivings about the secrecy surrounding the algorithms that power much of the internet.

“I think some of these algorithms, they’ll have to go to law school before they’re let out. You cannot just say, ‘What happens in the black box stays in the black box.’ You have to teach your algorithm what it can do and what it cannot do, because otherwise there is a risk that the algorithms will learn the tricks of the old cartels.”

While it is easy to identify problems caused by tech companies, fixing them looks harder. Regulating for greater competition is a start, so is transparency, yet, for now, the tech giants have momentum.

Source: Europe’s chief regulator Margrethe Vestager on reining in tech: ‘This is the biggest wake-up call we’ve ever had’ – Recode

Also on:

I talk on Radio New Zealand National Nine-to-noon programme with Katherine Ryan about the US government moves to scrap net neutrality rules. It’s available as a 20-minute audio stream or download. 

This has been on the cards since the US election a year ago. The telecommunications giants pushed for the new government to scrap net neutrality. No-one else is happy about the idea. In the audio, I explain some ideas behind the issue. I also look at why there is such a fuss in the US when most other countries don’t care.

If you’re new to the subject or would like some background on how net neutrality applies here,  Net Neutrality in New Zealand will bring you up to speed.

Silverdale 4.5G cell siteCompetition and regulation economist Donal Curtin says in a blog post there may be unfinished business with the mobile termination rate.

The mobile termination rate is the sum one cellphone company pays another for calls going from network to network.

Curtin is responding to the Commerce Commission annual report on the telco market.

He writes:

I speculated last year that maybe it is time to revisit our regulated mobile termination rate: it’s still unrevisited, at a left-high-and-dry level by comparison to current overseas rates, for no obvious reason that I can see. And there’s an ongoing issue with the high cost of mobile data downloads to data-only devices.

It’s a good point. Some see the MTR as done and buried. Yet there were always plan to reset the rate. As Curtin points out, the charge in New Zealand is high by international standards.

Yet, I’d argue this is far from the most pressing piece of telephone industry regulation. I’ll write more about what should worry the Commerce Commission in another post.

Mobile termination rate

The mobile termination rate is a financial transfer between the three cellphone companies. Vodafone, Spark and 2degrees pay each other.

This was of vital importance when 2degrees was still a fledgling cellular company as it meant the company ended up paying a larger slice of its revenue to its rivals. This made it a barrier to market competition. In effect, the MTR rate penalised 2degrees for being smaller than its rivals.

What matters most about MTRs is not the total payment from one company to another but the net payment. As 2degrees’ market share increased, the net handover of MTR money decreases.

Competition barrier

If you had three players with identical market share, the net MTR transfers would be zero. We’re not at that point, but the market is moving towards it.

It speaks volumes that 2degrees hasn’t sought to raise the issue again in recent years. During the company’s early years it did a lot of lobbying about MTRs. That can be distracting to a business and imposes a different set of costs.

The lack of noise from 2degrees is not the only reason that MTRs are of less interest.

Curtin mentions mobile data. The cellular market is switching from voice calls to data use at a clip. Data is already more important than voice. In other words, the MTR has less impact. When the Commerce Commission last regulated the MTR, calls were close to 100 percent of the cellular business. Today they might account for 50 percent at most.

Underlining this switch, all three mobile carriers offer affordable unlimited voice plans. Skinny has unlimited calling plans starting at $30 a month. Spark’s and Vodafone’s start at $60. With 2degrees unlimited call plans covering New Zealand and Australia start at $50.

If carriers can deliver all-you-can-eat mobile plans at these prices, the MTR doesn’t seem to be a barrier to competition.

Sure, reducing the MTR would mean a flatter playing field, but in many respects the New Zealand cellular market works fine.

There’s an untold story behind the 2017 Commerce Commission telecommunications monitoring report. Before we get to that, edited highlights from the official media release:

Telecommunications Commissioner Stephen Gale says:

“The cost of internet use has dropped over the last year with up to four times the data included at the same price points. 100GB in a fixed-line voice and broadband plan can now be bought for $65, $10 less than a year before.

“At the high end, a 100Mbps fibre voice and broadband plan with unlimited data costs $90 per month, 19 percent less than the equivalent in Australia1.

“Average broadband speeds have also been increasing thanks to a significant boost in fibre uptake, with fibre connections growing from 197,000 to 368,000 in just one year. Those moving to fibre generally get all the speed they need, while congestion is also reducing on the copper network.”

Mobile services are also accessible in New Zealand. An entry-level mobile plan with 50 minutes of calling and 100MB of data is $13 per month.

“Broadband and mobile service prices in New Zealand compare favourably internationally. It is pleasing to see our telco firms being responsive to the public’s consumption habits in terms of the pricing plans they have in the market.”

A glowing report

It’s a well deserved positive assessment. If you brought a report card like this home from school you could be up for a new bike or Playstation.

Even the title is approving: Consumers of broadband and mobile services get better value for money.

This is true. When it comes to bringing down costs, improving performance, adding choice and rolling out new service options New Zealand’s telecommunications industry has done well by any standard.

The industry has even managed to increase revenues in the past year, something it has not done in a while.

However…

Tucked away at the bottom of the report is a single dissenting sentence from Dr Gale:

“However, telecommunications consumers report a high level of problems and we believe there is plenty of room for improvement in customer service.”

There are pockets of decent customer service in the telecommunications business. Many of them are in the smaller telcos where the people fielding a customer call are the people who fix the problem. If you are a customer you may even know their names and faces.

Yet as anyone who has sat on hold for hours listening to repetitive “your call is important to us” announcements, a lot of telco customer support is abominable.

Structural reform

A decade ago politicians drew up plans to build a fibre network and reform the industry. The idea was to separate the physical land-based network from retail telecommunications customers.

This allows service providers to compete on a more even footing. Service is the key word in that sentence. It’s a word that often gets glossed over. Yet at the time of structural reforms many in government and in the industry thought the telcos would compete on service quality as much as price.

That never happened. New Zealand’s telecommunications customers never had an Apple-like player that towered over rivals by meeting and exceeding customer expectations. No telco decided it could charge a little extra for delivering a first class experience.

Race to the bottom

Instead of looking to impress customers, the bigger telcos compete on price. You’ll notice that the cost of a connection is often front and center in their marketing.

One school of thought says this is the most logical approach for a price conscious market. This, by the way, is not unique to New Zealand nor is it unique to telecommunications.

You might also note that, for now, most land-based internet services are bitstream. That is, service providers buy packaged connections from wholesalers. There is a set wholesale tariff. By law every service provider pays the same price.

Indistinguishable

This has the effect of making each service provider’ landline products almost indistinguishable.

Although the customer experience can vary from one service provider to another based on what they do further up the line. Take a look at TrueNet’s reports to see how much difference there can be.

They also use marketing.

It’s a little like petrol. All the petrol in New Zealand comes from the same source. Nobody thinks one brand offers better fuel than another. All the difference between brands is at the margins.

Customer support

Many internet users get by fine without ever needing customer support. This is understood well by Spark which owns the Bigpipe brand. There’s no traditional customer support. No-one answering phones. Everything is managed online.

Bigpipe customers pay less than Spark customers for what amounts to an identical internet service. They don’t get telephone support. They don’t get Spark’s Lightbox movies and they can’t use Spark’s wi-fi network without paying an extra fee.

One lesson from Bigpipe is a sizable slice of customers don’t care about support. For that matter they don’t care about Lightbox or Wi-Fi hotspots. That’s not true of everyone. Older, less tech-savvy users often prefer handholding.

Support challenge

The problem with customer support it is expensive for a service provider. It is difficult to get right. It’s even harder to maintain any kind of quality. Worst of all, it has the potential to go spectacularly wrong.

And it does go wrong. When customer support fails it can damage a brand.

There will always be some unhappy customers. That’s life. But compared with, say, the petrol business the telecommunications industry has a poor record.

Of course some brands are worse than others.

Thankless task

Customer support can be managed in-house or outsourced to an external provider, sometimes these can be overseas.

The advantage of overseas call centers is they can cost less. Not as much less as you might imagine. Wages may be lower in India or the Philippines, but so is productivity. Add in the cost of routing calls to a foreign destination and the economics do not look so good.

Overseas call centers have one big advantage: They have a ready supply of willing labour. It’s hard finding people to do the job in New Zealand and even harder to keep them. Sooner or later people get worn down dealing with angry customers.

Keeping a call center operating smoothly is an art form. It can be hard to get things back on track if things go off the rails and backlogs build.

Can the industry lift its support game?

Improving telecommunication customer service is far from easy. Profit margins are thin. They don’t leave much scope to invest in more customer support.

Customers do not like poor customer support when they think they have paid for it. Yet they seem to be fine with cheaper brands like Bigpipe who make it clear up front they offer less, then pass the savings on.

As a customer you can’t expect low prices and great service. The best you can hope for is acceptable service and reasonable prices.

 


  1. This is an impressive turnaround. A decade ago New Zealanders paid a lot more than Australians for broadband.↩︎