Free laptops with a new broadband subscription, fees as low as £10 a month - does anyone go into the business of being an internet service provider (ISP) with even the faintest hope of making any money?
Existing subscribers might have an idea where some of the money is coming from: 090 premium-rate numbers for support. A survey by YouGov for the price comparison site uSwitch.com estimated this month that we make 19m calls, equivalent to 2,000 every hour, calling broadband technical helplines at up to 50p a minute - these cost us a total of £34m annually, on top of the £2.8bn we pay for broadband service. Yet it's not the rip off it seems: even those premium-rate charges don't cover ISPs' support costs.
Yet even while some existing Orange customers were fuming (uSwitch found that they and TalkTalk customers were the least satisfied with their provider's technical support), Orange and Dixons Store Group (DSG) launched a joint promotion offering new broadband users a free laptop worth £300 - or £300 towards a better-specified laptop bought from one of the group's stores, which include Dixons and PC World. How could that make money for Orange?
"It was definitely commercially viable," says Hamish Thompson of DSG. And other providers followed suit, with Carphone Warehouse offering a Dell laptop to new subscribers and Redten Internet offering an LG-branded desktop as part of a sweetening deal for new subscribers.
So are ISPs so desperate for new customers they feel the need to entice us with promises of shiny kit?
The fact is, ISPs always need new customers. But they also operate on slim margins: BT charges broadband ISPs for their connection to an exchange, and the ISP must then cover the costs of administration, support and revenue collection - and, ideally, make a profit - in a market where everyone has access to the same BT exchanges. Virgin Media is now the only nationwide cable provider, and so can set its own prices, but these are often very similar to the phone-led ones.
Broadband takeup has rocketed: in 2005, the Office of National Statistics said about 50% of home internet connections were broadband rather than dialup. Just two years later it puts the figure at 90%. The problem for ISPs seeking to expand is that the remaining 10% aren't likely to upgrade soon. The only option is to steal them from other ISPs - what analysts call "churn". But how to tempt them?
Economy of scale
"You have to spend to acquire," says Scott Morrison of analysts Gartner. But there's still a problem: "Customer acquisition costs are high, especially if you are subscale." By subscale, he means small. ISPs are most efficient when they are large, he says, because they achieve economy of scale on their fixed costs, such as customer service and physical infrastructure.
And it is by having economy of scale that ISPs can afford to offer their deals - which is where they can begin to make profit. Thus you are offered "double play" (voice and internet), "triple play" (voice, internet and TV) or even "quad play" (voice, internet, TV and mobile) services, all in the hope of extracting more money from you.
Point Topic, a broadband analysis company, notes that in western Europe the standard DSL double play - broadband and voice - is marketed for an average of £28.7 per month (only £3 more than the average standalone broadband service).
But is this good news for consumers? The answer is yes, if you are looking for a package of services and think you won't need too much in the way of support, and if you don't mind being locked into the long contracts that the providers want you to sign: up to two years in the case of Orange's laptop package.
The advantage to the provider is clear, says Danny McPherson of US-based analysts Arbor: "There is opportunity for providers to offer many more services in new markets with only incremental capital and infrastructure investment. Now, rather than ARPU [average revenue per user] being, say, $25 (£12) a month, they can obtain ARPU of $100 a month or more."
This is why we have in the past year or so seen a change in the way ISPs market themselves to consumers. It is no longer about speed - even an entry-level 2Mbps service is perfectly adequate for most purposes - but about value-added deals. Sky, the satellite TV broadcaster, has one of the best-known campaigns with its "see, speak, surf" tagline, which stresses its triple play.
Carphone Warehouse, best known as a provider of mobile phones and packages, offers both a landline and broadband connection, while Virgin Media has a series of quad play packages that provide mobile phone, television, a landline and internet access. Its battle with Sky - which pulled its package of TV programmes such as Lost from the Virgin TV feed in a row over costs - should be seen in the context of two companies desperate to sign customers up to multiple services. Both companies want you to choose them, but Sky's TV package clearly tipped the balance: 40,000 left Virgin for Sky in the Three months to the end of June, as the dispute bit hard.
Pamela Varley, an analyst at Point Topic, agrees. "Customers are being offered good value with these bundles, but operators are having to cut their margins to the bone to provide them."
Those wafer-thin margins begin to show through when you need support - as many people do. uSwitch calculates that 39% of users had called technical support in the past 12 months. And it's not the moneymaker it seems. YouGov data suggests it takes 2.62 calls of average length 16.8 minutes to resolve a problem. Yet even with Orange's 50p-a-minute call charge, for which the user pays £22, the ISP won't recoup the £30 it costs to answer the phone (£10 per call), but will probably only get about half the call revenue.
Scott Morrison of Gartner reckons scale is the answer: "It makes sense to have one multi-lingual call centre serving multiple geographies."
Incredible bulk
"You need bulk," says Morrison, bluntly. He points out that "bulking up" has a further implication: that broadband providers have to swallow up smaller players in order to remain profitable. And this is already happening: Carphone Warehouse last year paid £370m to acquire AOL UK, which was the UK's third largest ISP. Last month (July) Tiscali bought Pipex for £210m, lifting its customer base in the UK to 1.9 million subscribers.
So where is the market going? Morrison reckons that in five years there will be no more than four big players in the UK market, although some will also offer smaller, differentiated brands. It's a tough market to be in, and one that doesn't exactly encourage new entrants. Says Michel Robert, managing director of Claranet: "I think you'd have to be brave to want to get into the consumer market."
Those wafer-thin margins begin to show through when you need support - as many people do. uSwitch calculates that 39% of users had called technical support in the past 12 months. And it's not the moneymaker it seems. YouGov data suggests it takes 2.62 calls of average length 16.8 minutes to resolve a problem. Yet even with Orange's 50p-a-minute call charge, for which the user pays £22, the ISP won't recoup the £30 it costs to answer the phone (£10 per call), but will probably only get about half the call revenue.
I've said that many times. It only works if you have very long call queues, which they can't legally do on 50ppm lines and on the national rate lines, would need to be constantly huge to have the same effect, is actually pretty rare, only happening where there is a majorly big outage. The only thing they end up doing is off setting some of the costs. The centre's themselves and agents are encouraged to keep calls short, there is no collusion to keep people on hold for ages or on the call for as long as possible, especially when any agents doing that would be penalised for doing so in the long run.
Joined: 03 Aug 2007Posts: 9Location: North London, Essex
The centre's themselves and agents are encouraged to keep calls short, there is no collusion to keep people on hold for ages or on the call for as long as possible, especially when any agents doing that would be penalised for doing so in the long run.
That is probably true - but it would be wrong to deduce that such a policy is to the benefit of the long-suffering customer. Surely, the exact opposite is the case? After waiting the average two or Three minutes to get connected to an agent (which you're paying for), unless the problem is bog-standard, you are then fobbed off with promises of "logging", "testing", or "escalation", coupled with the request that you call back. All sorted, from the Centres' point of view, in a minute or two.
The agent, on his/her fixed pay, is achieving high throughput, allowing more and more premium rate calls to be handled, whilst at the same time ensuring repeat calls - but little, if anything, is being sorted out.
Meanwhile, the customer is stuck on contract, paying for the service, and getting little or nothing in terms of customer satisfaction.
It became apparent to me, with regard to my own particular problems with Orange, that in reality those problems were caused (in the main), by the abysmal infrastructure provided by BT. But whereas I, as a customer, make strenuous efforts to get my supplier (Orange) to give me a decent service, it does not seem to be true of Orange (or indeed other ISP's) and their supplier (BT).
When Orange offer you a service, or conduct "line tests" for you, or perform any action which requires them to rely on data or equipment provided by BT, when they know perfectly well that such data and equipment is highly suspect and/or unreliable, it begs the question "why?"
Meanwhile, all these companies (including BT) are making profits. My argument is with Orange, and their argument is with BT. I want and expect the service I pay for - Orange have a responsibility to their customers, and should expect the same service levels from their supplier.
I'm really not going to cry into my cornflakes over the "wafer-thin profit margins" of ISP's - if you can't take the heat, stay out of the kitchen.
Meanwhile, all these companies (including BT) are making profits. My argument is with Orange, and their argument is with BT. I want and expect the service I pay for - Orange have a responsibility to their customers, and should expect the same service levels from their supplier.
Correct, contract management appears to be one of Orange's biggest weaknesses.
_________________ An ex-Orange guinea pig
"The first third of our lives is ruined by our parents, the second third by 0range then along comes 02 and you die happy."
It became apparent to me, with regard to my own particular problems with Orange, that in reality those problems were caused (in the main), by the abysmal infrastructure provided by BT
If that was the case, then why do the vast majority of people who migrate away from Orange claim to get much better speeds?
Joined: 03 Aug 2007Posts: 9Location: North London, Essex
If that was the case, then why do the vast majority of people who migrate away from Orange claim to get much better speeds?
An interesting point, and I can't answer with any certainty. But, as was suggested earlier, it may just be because some other ISP's push BT a little more than Orange do, regarding contractual obligations, rather than just accept what BT have to say as being accurate.
As an example, Orange maintained for Three months that there was NO fault on my line, after carrying out a number of "line tests". It transpired that the tests consisted merely of asking BT the status of my exchange - which in general terms, is just fine thanks.
It was only when a genuine Customer Service person finally realised that something was awry, and asked BT for a specific test on my specific line, that a problem was recognised.
But let's not allow our feelings regarding Orange cloud our overall judgements and opinions. To be fair, there are plenty of problems experienced by customers of other ISP's - it isn't just Orange. The question is: how do those other ISP's respond to problems? Quite clearly, in my opinion, Orange react with almost total passivity - and rake in money via premium phone lines, from perpetually disgruntled customers who have to "call back in 48 hours", or "call back when the system is up and running", and all the other excuses we've experienced.
The point of this thread was about how much the ISP's are making from Premium phone lines. I would very much like to see the figures broken down, so that we could compare Orange's share of the cake with the others.
The original article almost seemed to suggest that such charges were justified, in order to allow the ISP's to be in business. Well, I happen to have a different opinion. If the only way that an ISP can cost its' services accurately is to rely (to any extent) on income from customers calling its' helplines, then they've failed to do it properly, and shouldn't be in business at all.
But then... I happen to be one of those people who think that Premium Rate calls for help with something you've already paid for are, in the main, a morally objectionable concept. Or maybe I'm just a minority of one!
Joined: 13 Aug 2006Posts: 1689Location: Marylebone Central London
Some ISP's do push BT harder and some support lines are free Bethere who im with now is free and my last ISP IDNet support is free, it seems its mainly the big ones that use the premium numbers for their support or non support in some cases lol.
_________________ ex Freeserve/Wanadoo/Orange Blog
That is probably true - but it would be wrong to deduce that such a policy is to the benefit of the long-suffering customer. Surely, the exact opposite is the case? After waiting the average two or Three minutes to get connected to an agent (which you're paying for), unless the problem is bog-standard, you are then fobbed off with promises of "logging", "testing", or "escalation", coupled with the request that you call back. All sorted, from the Centres' point of view, in a minute or two.
First Call Resolution rate is another factor Orange do look at and unless it's an escalation where you're put through to another department who do resolve the issue then it doesn't count.
First Call Resolution rate is another factor Orange do look at and unless it's an escalation where you're put through to another department who do resolve the issue then it doesn't count.
That's annoying. When I had chronic download speeds their first offering was to send me a new RJ11. I demanded to be put through to escalations whose actions sped my line up. Surely they need to know where their scripts are failing and / or at least log this against the agent concerned
Joined: 03 Aug 2007Posts: 9Location: North London, Essex
First Call Resolution rate is another factor Orange do look at and unless it's an escalation where you're put through to another department who do resolve the issue then it doesn't count.
Doesn't count in what sense?
If you call CS or TS it costs you the Premium Rate per minute, and you are invariably placed in a queue simply to get through in the first place.
If you are then put through to Escalations... another queue - and still paying Premium Rates per minute.
And should Escalations be unable to do anything immediately (as if!), you have to call back in 48 hours or something (at Premium Rates per minute, of course). And the chances are, if you do call back, you have to go over the whole saga again, because the notes are either incomplete or non-existent (or even, in some cases, pure fiction).
I like the idea of resolving issues on a first call though - but with Orange, it would be great if they could resolve a problem in say... the first year!!
Sorry I was tired when I wrote that, if they fix the problem in the first call it counts but if you pass it on then it's hard to see the call as fixed. There is always a bunch of calls where you can't test things on the call or must send them away to do something to fix a problem. Those aways make you unsure if you've fixed it so everyone always underestimates the first call resolution rate.
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