Customers Critical of Carrier Care

Posted: 02/2000

Customers Critical of Carrier Care
by Dwight Allen, Barbara Deskey and Steven M. Martin

Corporate telecommunications managers should be in a great mood. Choices among carriers
have multiplied, prices are down, the variety of services is up and one-stop shopping is
increasingly available.

Yet, at many companies, telecom managers are not so happy–relationships between
customers and their carriers are insecure and getting more so. For the third straight
year, customer satisfaction is down, and carriers of all kinds received lower ratings in
very crucial areas, according to the findings in the latest series of surveys commissioned
by Deloitte Consulting LLC (www.dc.com) and released in
January.

Obviously this is disappointing news in a marketplace as competitive as
telecommunications, where loyalty and retention are priorities and churn is anathema.
What’s bothering customers? How can carriers improve their standing with customers and
turn this trend around?

As customers see it, the problem is responsiveness, and the symptoms show up across the
board–from price levels to service levels. The prescription for doing better has several
parts, but the overall theme is clear: Carriers need to translate into action the customer
focus they claim to embrace. In simplest terms, it’s a matter of listening harder and
making the changes necessary to give customers what they want. It’s about being a
customer-centric organization.

Carriers can take several steps to achieve rapid results in terms of customer
satisfaction and loyalty. These are tied directly to issues highlighted in the survey
results.

Customer Expectations Survey

For the fifth straight year, Deloitte Consulting surveyed telecommunications managers
at companies of all sizes throughout the United States. About 7,000 survey forms were
distributed and more than 500 responses were returned. The respondents represent a broad
range of industries and levels of expenditure on telecom services (see chart 1 below).
Each respondent listed a primary local service provider, which in all cases was an ILEC.
Each also listed a primary long distance service provider, or IXC. The distribution of
ILECs and IXCs in the sample tracks fairly well with carrier market shares. Additionally,
more than 50 percent of the respondents rated their CLECs, up from 25 percent in the last
survey.

Chart 1-Profile of Respondents

Overall Performance Ratings. Overall performance ratings (see chart 2 on page
118) have declined for the past three years. On a 7-point scale, in which 1 is "very
poor" and 7 is "outstanding," IXCs have gone from 4.7 in 1997 to 4.4 in
1999. ILECs have stayed flat, earning a 3.8 in 1997 and 1999. Last year was the first in
which telecom managers evaluated CLECs. The 1998 rating was 4.2, and in 1999 it was 3.9.
Thus, IXCs have led ILECs in performance ratings in each survey, though even the higher
IXC scores have not been exemplary. The gap has narrowed with each survey, but in the 1999
poll, a decline in perceived IXC performance drove the reduction.

Areas for Improvement. Three main areas emerged as needing improvement (see
chart 3 on page 120). Operational responsiveness (principally installation and repair) led
at 26 percent, followed by higher quality account team at 23 percent, and lower prices and
more pricing options at 21 percent. Carrier type accounted for some variation. The leading
plea to IXCs was for improvement in operational responsiveness. Thirty-three percent of
the respondents raised this issue (compared to 25 percent for ILECs and 19 percent for
CLECs). For ILECs the top item was to offer lower prices and more pricing options–26
percent of the respondents chose that (compared to 20 percent for IXCs and 16 percent for
CLECs). Two requests dominated the respondents’ comments with respect to CLECs–improve
account team quality and improve network quality and reliability. Twenty-five percent of
the participants raised the account team issue (compared to 23 percent for IXCs and 21
percent for ILECs), and 23 percent said they would like to see improvements in network
quality (compared to 8 percent for IXCs and 12 percent for ILECs).

Account Teams. An overwhelming 92 percent of survey respondents say they prefer
account teams to other sales channels (such as the Internet). However, the account teams
assigned to look after them evidently are trying their patience. The number of telecom
managers giving their account teams failing grades was greater than the number giving
their account teams the highest grades. In fact, more than half the telecom managers rated
their account teams as either failing or barely passing (see chart 4 below). Although all
carriers were rated low in this category, some faired more poorly than others did.
Relatively speaking, CLECs do worse than ILECs, and ILECs do worse than IXCs.

Chart 4-Account Team Rating

Preferred Provider. Assuming parity on matters such as price, availability, and
network reliability, a large majority of respondents from multinational and national
companies chose IXCs as the preferred full-service provider. Among respondents
representing companies with regional (less than national) coverage, a 48 percent-46
percent split emerged, slightly favoring ILECs to IXCs. For local service only, 47 percent
of the respondents said they would prefer a carrier other than the ILEC, which was up 10
percent from the last survey. Among those preferring an alternative to the ILEC, 76
percent favored an IXC (down from last year) while 19 percent favored a CLEC. For
long-distance service only, about 75 percent of the respondents said they would choose an
IXC, with ILECs being the choice of most of those who would look elsewhere.

Chart 2-Overall Performance Ratings: 1997-1999

Finding the Message in the Survey Results

In reviewing the data, several things are apparent. First, corporate telecom managers
are not feeling well served. Second, IXCs can derive some comfort in knowing they continue
to do relatively better than ILECs and CLECs in the ratings. However, third, even IXCs
should not feel complacent since many of their ratings were below the levels that would
suggest strong customer loyalty, and in some areas they have declined from prior surveys.

What lies behind the disappointing customer ratings? It’s that many carriers have not
become truly customer-centric organizations.

Deloitte Consulting defines a customer-centric organization as one that displays two
characteristics. First, it pays close attention to information from and about its
customers. It seeks customer feedback and systematically tracks customer satisfaction and
loyalty. Second, it effectively integrates what it learns regarding its customers into its
decision-making and management.

A customer-centric organization benefits from a "loyalty cycle" in which
customers’ preferences are reflected in how they are treated, the way products are
designed and the prices they pay. This, in turn, should produce higher sales and greater
retention.

The rewards accruing to a customer-centric organization are real. A recent global study
by Deloitte Consulting’s Deloitte Research unit found that manufacturers who qualify as
customer centric because of their diligence in tracking and building loyalty are typically
60 percent more profitable than their less-focused rivals.

The customer-centric companies also are twice as likely to exceed their goals for
shareholder returns, pretax return on assets, sales growth, market share and new-product
development and to derive a greater share of revenues from new products.

All this can be traced to these companies doing a better job of noting and acting upon
what their customers tell them and what they indicate through what they buy.

By contrast, the survey results imply that carriers have taken their eye off the
customer relationship side of the business. As competition intensifies, the survey results
portend a price war, in which dissatisfied customers resist bonding with any one carrier
and often go with whomever submits the lowest bid.

Of course there is nothing immutable about the customer survey findings. It isn’t
preordained that next year’s poll will show further slippage in customer satisfaction.
However, concerted action is required to improve the situation. Adopting the
customer-centric approach offers the best hope of strengthening retention rates and
profitability.

Chart 3-Most Important Improvement Area

Action Steps for IXCs, ILECs and CLECs

The survey results provide some useful feedback as to what telecom managers want. The
information is more general than what an individual customer-centric organization would
get from its constant interaction with those it serves, but it offers clear guidance as to
the overall direction in which carriers should move.

With respect to IXCs, the responses indicate the areas for improvement are in
operational effectiveness and account teams. Moreover, IXCs should take note that ILECs do
well among companies with regional coverage as the preferred provider of bundled services,
and that ILECs command strong support as the preferred provider of local service.

A customer-centric IXC would respond to these messages by taking two steps. First, it
would deal with operational responsiveness issues. This would mean improving the integrity
and efficiency of installation and repair activities. It would also mean strengthening the
links between the IXC and any affiliates or partners (such as ILECs) so the interfaces
stay where they belong, behind the scenes. Second, it would institute a program to upgrade
and better equip account teams. This would encompass matters relating to local service and
knowledge of local markets as well as to matters within the core interexchange business.
These steps would address problems telecom managers have cited, and in the process make an
IXC more competitive with ILECs on their home turf, where the IXCs need to succeed as they
seek revenues to replace those lost to Bells entering their long-distance domain.

For a customer-centric ILEC, toning up account teams would be a priority. However,
several other issues would be on the agenda. Pricing and contractual terms clearly require
attention. One imperative would be to achieve cost savings that can be reflected in price
reductions–avoiding cost cuts that compromise customer service. Another would be to match
the kinds of terms IXCs typically offer, such as multiyear contracts with annual rate
negotiations and incentives for increased volumes. Next on the list: Expand geographic
coverage and service capabilities to appeal to the multinational and national customers
who currently show such partiality to IXCs.

In executing these strategies, regulatory policies may be a problem, particularly for
Bell companies. For example, developing a national long-distance business is complicated
by the Section 271 restrictions on Bell company participation in the in-region,
long-distance market. However, a customer-centric Bell organization would proceed with
numerous interim changes, not deferring initiatives to address pricing and service issues
pending resolution of the regulatory struggles.

As for CLECs, the mandate boils down to making the transition from being the low-cost,
no-frills provider to being a fully qualified business partner. The survey respondents
sent this message when they identified account teams and network performance as key areas
for improvement, and when the majority of their votes went to IXCs and ILECs for preferred
provider.

Three things would dominate the to-do list of a customer-centric CLEC. First, develop
account teams with the technical and relationship-management capabilities required to
compete with the best IXCs and CLECs. Second, build and upgrade network facilities to
become more comparable to the big-league players–leapfrogging their technology whenever
possible. Third, sell solutions rather than price. Low bids are an effective strategy for
establishing a market presence, but offering solutions tailored to customers’ specific
needs are essential for growth.

Establishing a Customer Focus

While the survey results were informative, handwritten comments from some respondents
did a particularly good job of communicating what is on their minds. For example, concerns
about IXCs’ operational responsiveness were captured succinctly by this admonition:
"Do what you say you will do, when you say you will do it." The challenge facing
ILECs was summarized well by this request: "Be more flexible on pricing." Two
pieces of advice for CLECs spell out what customers want them to do. First, "Get your
account teams up to speed –they need to be technically competent, not just sales
people," and second, "Get a stable, reliable network."

These are the voices of the market. These are the kinds of messages customer-centric
organizations take to heart and upon which they act. Carriers who are adept at doing this
will develop the strong relationships that prevent churn and that provide the opportunity
to charge premium prices, even in an increasingly turbulent and competitive market.

Dwight Allen is communications and utilities director for the Deloitte Research unit
of Deloitte Consulting LLC (www.dc.com). He can be reached
at +1 202 220 2667. Barbara Deskey is a senior manager in the communications industry
practice at Deloitte Consulting. She can be reached at +1 404 631 2080. Steven M. Martin
is a principal in the Washington, D.C. office of Deloitte Consulting. He can be reached at
+1 202 220 2656.