Telco Customer Service Madness and the NBN

Will Telstra, as it is now, survive to see the NBN contracts end in 35 years?
My view: It won't, not in its current form.

In 2006 I started to write about my concerns for Microsoft's future, giving them 5-6 years before major cracks appeared. They haven't collapsed yet, but Horace Dediu (asymco) has produced a graph that unequivocally shows their rapid decline in whole-sector market share: the quantitative support for my hypothesis.


I didn't understand that when "the pie is rapidly growing", as in technology, companies can survive, even increase sales, whilst their market-share falls off a cliff. The model is IBM post-1980, not Unisys post the 1986 merger of Burroughs and Sperry, with their revenues shrinking by around 10 times.

Telecomms Industry Structural Changes

There are three structural economic changes that Telstra has to master to survive another 15, let alone 35 years:

• Sector Economic Reform through "Digital Convergence".
• Open Access wholesale networks competing for all services except mobile 3G/4G.
• Good Customer Service and Cost-Effective Operations.
• Quality, Performance Improvement and Profitability are inter-dependent, all are based on Reviews and deliberate Corporate Learning and Adaption.

Telstra have regarded the vertically integrated network as their "birthright", operated under the "Traditional" Telco Business Model ("what the market will bear" not "cost plus margin") and relied on captive markets. Once they could claim "Engineering Excellence" as a counter to outrageous Customer Service, but not so for the last 2 decades. Their management mindset must change to accept current conditions, or with the NBN, they will "lose the farm".

All these "pillars" of their business are being shattered, first by Internet Everywhere, by the NBN removing their customer lock-in and an increasing number of Technology Businesses that "get" Apple's insight and innovation: The User/Customer is all important for your Business.

What Telstra should be doing to undo the resulting Brand Damage

Below is a case study that Telstra should deeply investigate as it encapsulates most of their challenges/deficiencies and could be used as an on-going Reference for Change, but why would they?

In an ideal world, the centre of the study would have these outcomes:

• A personal meeting with the Head of Telstra for the State.
• An apology from him, a guarantee it would never happen again and his personal phone number if further problems arose.
• An audit of all records for their services and accounts to correct all errors.
• A written account of:
• Exactly what went wrong,
• Why it couldn't be fixed, and
• Why it won't recur.
• An offer of compensation for the non-supply of service, for the hours of customer time wasted on the phone and waiting and an ex-gratia payment for the "pain and suffering" caused.

Does any of that sound "over the top" to you?

Consider for a moment, "What would Richard Branson do?". If he was in the country, he'd personally see them, otherwise it would be someone very senior and it would be done very quickly. Stories about his interventions are legion, this is not wild speculation.

If you think Branson and his Virgin Empire are "off with the pixies" and not in the real-world of Big Bureaucracies, mass workforces and challenging business environment, consider the page, "Turn Complaining Customers into Advocates" by The Royal Mail, one of the oldest communications companies on the planet, working under one of the most demanding Industrial Relations systems, riven by Unions and staffed by British Workers, renowned for their lack of customer empathy and poor work-ethic.

If The Royal Mail management understands Customer Complaints are opportunities to both fix your business processes and to convert a hostile customer who'll damage your brand into a strong Brand Ambassador for you, then why don't Telstra?
Don't they understand the rules of Customer Service or read the same well known management books?

What Telstra says it does

In the 2005 Telstra presentation, released to the ASX, supporting their 20,000 node 12Mbps ADSL2 network, I was very impressed with their guiding principles (p3), but those are nowhere to be seen in this case:

• Principle #1: Do it once
• Right first time, every time
• Simplify, standardise, focus
• Less of everything – fewer products, platforms, applications, processes, vendors
• Capture the benefits of scale through focus
• Principle #2: Do it right for the customer
• Invest against the things customers value
• Principle #3: Do it in an integrated way
• One Factory
• End to end approach
• Whole greater than the parts
• Principle #4: Do it at the lowest unit cost
• Scalable
• Costs grow slower than revenues and volumes
• Limited manual intervention

Case Study

The facts of the case study and an analysis of causative Systemic Failures are in a previous post.

Psychological Dimension: Stirring strong customer abreactions

Feelings of Frustration, Powerlessness and Agitation in response to poor Customer Service aren't a "minor annoyance" or idiosyncratic: there is some very deep human psychology involved.

The positive effects of Goal Attainment means the inverse, preventing people from achieving goals, is devastating, more so for high-performing individuals as here. If intermixed with multiple events setting up false hopes and then dashing them, the customer response is even more profound.

Treating customers badly, especially when you know about it, is really bad for business. The cumulative Brand Damage may not be curable. It will cause massive customer revolt and backlash when they have reasonable service substitutes available, such as from the NBN.

Business Consequences

This whole episode was preventable: it was clearly an internal fault within Telstra systems.
It wasn't a user-error (the Client did nothing), it wasn't a hardware, connection, patching or line fault nor a an accounting or software error.

My speculation is that Telstra has significant service database errors since the $10B 2005 (1st phase live in 2007) "IT Transformation Project" led by Greg Winn, one of Sol's "Three Amigos" whom returned to the USA with full saddle-bags. It seems complex, high-value customers like the Client were never catered for, from the 2009 article on the project over-running by $200MM (2%):

Thodey said 9.2 million customers have moved onto Telstra's new billing and CRM systems, which represented over 70 percent of the carrier's customer base.

The final thirty percent were "multi-product holding customers" he said - referring to those Telstra customers that use more than one of the carrier's services.

The fault had something to do with a modem attachment being incorrectly setup in the database, possibly by an automatic provisioning system attached to the order/fulfilment system.

The ARPU for the single service is $60-$80/month. Total revenue on this account, would be $1-2,000/month. Gross Margin must be 30-60%, Net Margin more like 10-15%??

This whole episode put at risk $10-15,000/year on-going revenue for a $10/month Net Margin. I'm sure Telstra won't bother to detail and account for the cost of the event. Why would they? The fault is fixed.

Over the six week period, there must have been:

• 30-50 phone calls
• 20 staff directly involved and 10-20 indirectly or in 'backroom'.
• 50-100 hours of phone calls [$50/hour?]
• 4-6 site visits, each 1 hour or more [$150+/hour]
• 10-40 hours of marketing and engineering effort [$100+/hour]

This preventable error has cost Telstra close to $10,000 for under a $100/year return. They can never make their money back. They are also quite likely to lose all of the Clients business, forever, if they don't directly attempt to follow The Royal Mail's approach and win them back.

As a shareholder, the Client was frustrated that the business was wasting money so prolifically, yet the organisation resisted all efforts to hear this news.

The worst aspect is that Telstra seems oblivious to any need to learn from this affair and follow their own Principles espoused in 2005, "Do it once, Do it right for the customer and Do it in an integrated way".

Lessons

1. If faults aren't covered by the (telephony) Customer Service Guarantee, then Telstra behave very poorly towards Customers.
2. The Telstra Customer Service and Complaints fails dismally with complex issues.
• There appears to be no recognition of "process faults" or identification of "not previously seen" faults.
• There appears to be no fault escalation process.
3. Shareholders are not treated better than anyone else. A marketing opportunity to improve shareholder relations going begging.
4. Busy people's time is worth a lot to them, yet Telstra fail to acknowledge this nor provide ways to bring more certainty to site visits. Telstra could help itself and customers by:
• Having registered 'home sitters' that customers could use to allow them to carry on with their lives, or
• Telstra could charge extra for shorter attendance windows (2 hours, 1 hours, 30 mins). If this is allowed by the ACCC and Telco Regulations, it would earn them considerable money and by only reordering technician visits within a single day, not affect service calls.
5. Telstra seems not to have a culture of Review Incidents, Learn from Mistakes to intentionally Improve Service, Profits and Productivity.
• Telstra has a major improvement opportunity here and seems to be deliberately discarding it, being intent on destroying customer goodwill and shareholder value.

Prognosis

Within 10 years, NBN-Co has planned to displace most of Telstra's wholesale copper network with fibre.

By then, all Retail Providers that can provide good Customer Service will beat Telstra in the marketplace. We are likely to see many small retailers who can offer good, local service, like ISP's, as well as a few large existing companies that compete solely on price,

The NBN seems to be the "magic bullet" that will allow customers to change and release decades of pent-up frustration with Telstra and their oligarchy and monopolistic mindset. The Internet and smartphones/mobile devices have changed the rules of the Telecommunications forever.

If Telstra doesn't learn the lessons of Great Customer Service practiced by the likes of Richard Branson, their only competitive asset will be their 4G mobile network. Which, because they haven't allowed competitors open access via third-party roaming, and forced them to overbuild networks (like HFC Cable TV) is of very little value.

Unlike Microsoft, Telstra is in a Mature Market with moderate, but non-zero, barriers to entry. In a low-growth market like Australia, its revenues will be "eaten" by others, it will follow the Unisys path downhill, but like Unisys, is likely to remain as a brand or engineering operation, though nothing like they are now.

In the same way that I viewed Microsoft as entering a challenging period, I think Telstra is as well, though I don't have a way to estimate or forecast the timeline.

My father spent his entire working life within PMG/ABC/Telecomm/Telstra and it was one of Australia's finest achievements for many decades. I doubt he would be proud of what they've become and I am saddened at their fall from grace.