Bundled Services: A Great Big Ball of Consumer Angst?

Are cable “bundle” customers changing channels to wireless telecom services?

A recent study by the CFI Group, which focuses on measuring customer satisfaction and CRM issues, indicates they are. That is, if they can.

Some can’t, either because the choice is unavailable, or they have signed the option away. Here’s how:

A consumer signs up with a communications provider for a bundled service deal, locking in Internet, telephone, television or other services in one package, at what might appear to be a bargain-basement rate — and that’s the catch.

A customer who, for some reason, isn’t happy often has little recourse for remedying the situation and usually can’t get out of the contract.

“Consumers do feel trapped in a lot of ways,” CFI Group Senior Consultant John Gilbert told CRM Buyer — and, in a sense, they are. In some cases, companies offer an attractive rate to get customers to sign up for bundled services only to hike their prices three months into the contract period.

“It’s a situation where, of course, you’ve got to read the fine print,” said Gilbert.

Service Neglected

Long-term customers often feel burned when their providers limit great promotional deals to new acquisitions.

“You have a customer who says, ‘I’ve been a bundled customer for over a year now; they should be catering to me, giving a loyal customer a better rate — and now they’re offering a better deal to somebody new,'” Gilbert said. “Consumers feel they should get a whole lot better treatment and service.”

Consumers likely would prefer telecom bundled services by a two-to-one margin if the option were available, suggests CFI’s recent study, which examines telecom vs. cable bundled services.

Cable now has the infrastructure — and the head start — at about that ratio, Gilbert said.

“One of the main points of the study, of course, is looking at cable being the ringleader of bundled customers,” he noted. “The telecom companies are coming into the fold with video services, with IPTV services. Consumers are starting to be aware that there are alternatives, and are now more willing than ever to switch if they have a choice.”

The two biggest reasons customers considered leaving a cable provider of bundled services were high rates and poor customer service, according to the study.

Customers of telecoms cited the need for faster Internet access as a primary reason for switching to cable.

Video services like AT&T’s U-Verse IPTV and Verizon’s FiOS are beginning to spread.

However, “the challenge is [telecoms] can’t roll it out fast enough for these disgruntled consumers,” Gilbert said. Verizon is expanding its service. Right now, it’s hitting New York City. Slowly, it’s being trickled out. AT&T is moving a little more slowly, but it has more ground to cover.”

Bundling is a key to control over customers, which may explain its proliferation, said Rob Enderle, principal analyst with the Enderle Group.

“Bundling is an old practice that has its roots in account control, likely before we even called it ‘account control,'” Enderle told CRM Buyer. “The value to the buyer is more stuff at a lower overall price, but the buyer may not want all the stuff they get, and they lose flexibility if there is a point solution better than any of the bundled parts.”

Over time, account control tends to lead to dissatisfaction for two reasons, Enderle said. First, customers have nothing with which to compare what they are buying. Second, vendors increasingly believe customers are locked in, and therefore fail to nourish customer relationships.

When vendors gain too much market control, “they tend to milk the customer base by increasing prices without substantially improving the bundle,” Enderle said. “The customer then pulls the plug, and if this happens en masse, the company wonders where its revenue went. This happened to IBM in the ’90s, and you could argue it is a big part of Sun’s problems today.”

The Good News

There’s an upside to the war between the cable carriers and telecom providers, Enderle said.

“This is a war both sides are playing hard, which helps keep prices down and the value of the bundle up,” he said. “However, should one vendor — AT&T or Verizon are the best bets at the moment — become dominant, we’ll likely not enjoy the result.”

Consumers need to be wary of offers of low rates that last only a while — until the customer is hooked, Enderle noted.

In theory, bundled services are a win-win proposition, said Roger Kay, president of Endpoint Technologies Associates.

“Bundling is predicated on the strategy that the higher the price point the greater the value,” Kay told CRM Buyer.

“At each higher notch, you’re getting incrementally higher value. Therefore, customers are likely to trade up, which has good revenue characteristics. Often, these incremental services don’t cost more to deliver. So, more value is delivered, but so is more profit,” he explained.

“However, consumers may end up paying more than they intended, budgeted for, and ultimately are able to afford,” Kay said.

Worse, they may end up feeling as though their carriers have locked them up and thrown away the key.

The trend toward forgetting about customer needs after their deals are inked is “a brutal indictment of shoddy customer service,” said Charles King, principal with Pund-IT. “It also seems to undermine the hopes of cable companies planning to offer their own wireless or voice services. If, given the chance, two thirds of your customers would head for the exits, it’s time to take a long, hard look in the mirror.”

Whether customers feel “trapped” in their service contracts is relative, King said.

“The fish being reeled in may have some fleeting thoughts about how darned tasty the bait was,” he said. “Telecoms typically use cheap or ‘free’ products — cell phones, satellite receivers, installation packages — to entice consumers into long-term contracts with steep exit fees.”

Tie-ins: Tools of the Trade

Companies with exclusive rights to popular products — AT&T’s dibs on Apple’s iPhone, for example — leverage that popularity for all it’s worth, observed King.

“Note the shilling of iPhone 2.0 as being ‘twice the speed, half the price,'” he said. “Sure, the base cost of the phone was half, or less than half, of the original iPhone, but popular services were more expensive, effectively negating any savings.”

So, what’s the answer? Perhaps increased competition.

“Cable companies have become increasingly responsive to consumers since telecom companies got into the TV business, and I expect the iPhone will become cheaper as alternatives like the G1 and RIM Storm begin slicing and dicing the smartphone market,” King said.

“I think that as the telecoms start to roll out and market their IPTV services more prolifically, cable TV will wake up to the fact that they have competition,” commented CFI’s Gilbert. “All things being equal — including pricing — eventually it’s going to boil down to customer service. If I have a poor experience with cable, and telecom offers better service, I’m more apt to switch to them.”

There’s a lesson for telecom providers as well, Gilbert said. “If they venture into cable’s world, which is a different world, they have to be prepared. You have a much more impatient customer, especially if they’re watching a program and the service goes out. Telecom is going to be entering that world. So, this is both a threat to cable, as well as a challenge to telecom — especially if you’re going to have two or more players vying for customers.”

Enough Is Enough

The bottom line is that consumers are fed up, remarked Gilbert.

“We’ve done this study for two years in a row, and we sense a lot of frustration and a lot of hostility,” he said. “It’s not all applicable to cable companies, although they are most mentioned. Couple that with the hard economy we’re going through, and people are making hard choices about what to do with their discretionary budgets. They don’t understand why rates are going up at the same time customer services seem to be diminishing.”

Bundled service deals are sort of like adjustable-rate mortgages, said Jack Gold, principal with J. Gold Associates.

“The first year is great, and then you get a balloon payment the second year,” he told CRM Buyer. “For some consumers, it’s a real problem. If you can get a good deal without a long-term commitment, that’s the way.”