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Like many cell phone customers, you may be irritated from time to time by the fact that your telecom service supplier locks you in. They do this in two ways: by the equipment they provide you with and by the length of their contracts.

The length of the contracts and the associated termination fees has been a visible point of contention for some time. In 2005, an article noted that Cell Phone Customers Are Held Captive by Termination Fees. The following illustrates the problem:

Nearly half of U.S. cell phone customers would switch or consider switching cell phone service carriers to get a lower rate and better service if they didn’t have to pay an average penalty of $170 to cancel their service contract, according to a new economic analysis and survey released by U.S. PIRG (Public Interest Research Group).

It is unlikely the situation is in any way better now.

The handsets supplied by the telecom companies also attempt to lock in customers. Here in Canada it is almost impossible to remove the lock if you are a Telus or Bell Mobility client. Rogers Wireless uses the GSM (Global System for Mobile communications) technology and here the handset can be unlocked to use service from a different Telecom service provider, although this fact is kept somewhat secret.

This packaging of the handset and the wireless service as ‘the product‘ has been used to justify the long-term contracts. Heavily discounting the cost of the handset has the appearance of a reasonable quid pro quo for a lengthy contract.

That was yesterday. Now we have the Apple iPhone and AT&T has decided to change the cell phone service business model. Stephen Bone points out that

AT&T has announced that their plans for an unsubsidized iPhone will require a two-year contract. .. What AT&T may be trying to do is to redefine the business model for the entire American cellular industry. They may want to set a precedent for getting rid of handset subsidies altogether. And the reason for the two-year contract with the unsubsidized iPhone is to establish that lock-in contracts remain a part of the deal.

It would appear that AT&T has opened the Pandora’s box on this approach of multiyear contracts. What benefits do customers get out of such contracts? If AT&T’s service was way ahead of the competition then it might seem reasonable to sign such a contract. However the typical cell phone service Telecom seems to adopt a strategy of being no worse than the others, rather than working on excelling in customer satisfaction. Just remember how poorly Telecoms rate on customer service surveys. Think also on the mixed reaction that many customers have to the walled gardens that Telecoms often maintain.

Given this legacy, it should not be difficult for a new competitor to carve out a major share in this marketplace. All that is needed is to provide a total package that is

• satisfactory to consumers,
• giving good Internet accessibility (no walled gardens),
• with good user experience and
• that does not attempt to hold consumers to ransom with punitive termination penalties.

Which company will be the most likely to grab this share? It should ideally have

• mobile Web experience,
• strong usability experience and
• access to a suitable handset

One name that comes to mind is Google that may well be in the process of launching its Gphone. If they choose to maintain customer loyalty by offering good service rather than locking customers in with long-term contracts, it should be a winning combination.

Related:
Your Call Is Important To Us – Roberto Rocha
Customer Service From Telecommunications Companies
Walled Gardens – The Walls Keep Tumbling Down

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