Years ago we read a Request For Quote from a mobile phone company desperately seeking advice on how to stop its customer churn. It faced a horrific, potentially bankrupting problem — the business was losing nearly 25 percent of its customers every year.
Which is why we find Walt Mossberg’s polemic against cell phone carriers so interesting. Today WSJ devoted an entire special section to its technology columnist’s rant against the many sins of big wireless cos. Geez, Walt. You even called them a Soviet Ministry.
Sure, there’s a lot to dislike: Onerous contracts, inflated phone prices, artificial rebates, locked technology, incompatible networks, overage charges, rollover minutes that vaporize, spotty coverage, missing SIM cards, missing software, crappy web interfaces, incomprehensible bills, and inconsistent subscription pricing. In fact, you probably pay a very different rate for your monthly service than other users on your network. Don’t believe us? Get your bill, call your carrier, explain you want to sign up as a new customer — and hold your breath at the price differential.
Alas, there is a reason for all this mess, and it’s you, dear customer. You see, customers are fickle, and a sizable portion of the population skips around from utility to utility every year. Admit it. A sexy new cell phone comes strutting by, and you’re out the door. If this were a human relationship, you’d be a floozy.
Companies that provide commodity services such as cell phones — remember, it’s just a phone call, after all — have to compete with other companies that offer exactly the same service. And they know you’re cheap. Now, put yourself in their shoes. About 20 percent of their customers defect every year. They have to replace them. So big wireless cos do two simple things: Install switching costs to keep old customers from leaving, and offer discounts and incentives to get new customers to sign up.
Rollover minutes? They are a positive switching cost — if you leave, you give up something of apparent value, the 2,000 “free minutes” you’ve accumulated. Termination fee? Now that’s a negative switching cost. If you leave, that will be $299 please. Get it?
We’re sorry to inform you, Walt, and you, U.S. consumer — but everything you hate about cell phone companies comes from your own behavior. In a commodity marketplace where consumers constantly shop around, the big companies will create barriers to try to wall them in. They have to, to recover the billions in investment they make in cell phone towers and untested technologies. If you took out loans to build cell phone towers, you’d be worried, too. Years ago, priests invented marriage contracts to keep us all in the pen. Now, we have cell phone contracts. If we humans all weren’t so disloyal, maybe our communications would work just a little bit better.