The Dilbert comic strip for today was a perfect trigger for me to revisit something I’ve been thinking about for a while, and that’s the impact of apathy and laggards on the adoption of new technologies in telecom (something I promised to write about here), but almost more importantly the abandonment of old technologies. Here’s the strip:

The key point that I’ve been thinking about recently is that these late adopters or laggards have a pretty dramatic effect on telecom spending, in that they considerably slow the rate of change, and especially the rate at which old services decline.

A case in point: AT&T’s standalone long distance voice service. This used to be AT&T’s bread and butter, alongside its services for business customers, and it sold it aggressively (as illustrated by New Yorker cartoonist Kim Warp in another cartoon, at left). In 2001 it made just under $14 billion from these services and made up the vast majority of its consumer revenues. Around that time, local telcos such as Verizon, SBC and BellSouth began marketing their own long-distance services, sold as part of a bundle with local services and over time broadband and video as well. Also, in 2003 the FTC introduced the ‘Do Not Call’ list, preventing companies like AT&T, MCI and Sprint (and also obviously many others in other industries) from cold-calling non-customers to sell their services. This in essence destroyed the main way these companies signed up new customers.

As a result of both of these trends, AT&T saw its long-distance revenues drop from that $14 billion in 2001 to $10.4 billion in 2002 and $7.5 billion in 2003. That’s a pretty steep decline for a core service. But look at the equivalent number for 2007: $3.7 billion. Yes, it’s about half what it was in 2003, which is a steep decline. But look at it a different way: this is a service that AT&T hasn’t marketed for five years and which competitors have been aggressively selling against for even longer. And yet the subscriber base has only declined by 50% in four years.

That’s actually pretty remarkable! Every one of the customers still using AT&T for long-distance must have been contacted by their local phone company to add long-distance to their package, and yet they’ve resisted? Why? Because these people are by their very nature apathetic about changing services that serve them perfectly well - they’re classic laggards when it comes to new technology. And yes, I’m sure the over-60 set is unusually well represented among this group as the Dilbert cartoon seems to imply.

But they’re not the only ones. A few years ago I heard one manager at a telco talk about two types of customers in the context of bundled services:

• Those who were cash rich but time poor. This group tended to be favor a telco bundle, because the money saved by switching to several individual products at a lower price was worth less to them than the time they’d spend researching, choosing and switching replacement products. Busy professionals earning a decent living would be among the prime examples.
• Those who were time rich but cash poor. These people needed to save money wherever they could and had the time and inclination to hunt down the best possible deal, even from multiple separate providers if appropriate. 

Laggards don’t just include the seniors who simply can’t keep up with changes in technology and just want the phone to work. They also include those in the first group above - young and middle-aged, affluent people. The interesting thing is that, although all providers naturally chase the group most likely to switch, this is often a mistake. The laggards can often be far better customers, because once you’ve got them they’re much less likely to switch to someone else. The second group would have taken up the old AT&T, MCI and Sprint on every offer presented during a telemarketing call and probably ended up being paid to take long-distance service from whichever provider they were using at any given time. Those are the worst customers in the world to have!

Telcos should be doing everything they can to ensure that they can hold on to those customers that are motivated by inertia more than they are motivated by cost savings. A former colleague of mine did some analysis a few years ago about net present value related to wireless subscriptions, and he discovered that the ‘glovebox phone’ - the cellphone someone signs up for and then stashes in the glovebox in the car for emergencies - is the highest net present value subscription that carrier has - lots of revenue, hardly any cost. And they’ll never churn.

In all the segmentation work telcos are currently engaging in, they need to ensure that this group is identified and respected for what it is: the backbone of their business. Obviously a telco can’t afford only to attract those customers in this laggard group - at least at current revenue levels. There are many more customers who are much more likely to churn, and lost customers to win back. But this group of customers can be the anchor for a broader customer base, and provides the economies of scale to keep costs low for the rest of your customers. This group of customers provides a massive chunk of overall cash flow and margin. So this segment should be rewarded for its loyalty with perks and appreciation. In addition, telcos shouldn’t take steps designed to save 1-2% of customers which reduce prices for the other 98% of customers as well, including those who were already entirely happy with their service and very unlikely to switch. 

On the flip side, though, telcos also need to understand that these customers will still be on an old network even when the vast majority of the base has migrated to the new technology. Shutting down analogue cellular networks was delayed for a long time because of the rump of subscribers still using those old phones (or at least keeping them in gloveboxes). ATM and Frame Relay networks (yes, this effect applies in business too - businesses can be at least as inert as individuals) will have to be run for several more years even if the vast majority of customers have migrated to MPLS. This means you have to find ways to migrate those customers gracefully when the time comes, in such a way that they suffer no disruption and the service works the way it always did (don’t be tempted to think that it has to be better - they won’t see it that way).

Overall, my key message is that this group, and the effect of inertia and apathy on telecoms growth, cannot be ignored. These are some of the most valuable customers telcos have, they need to be served differently, and they don’t want to migrate to the latest greatest product or platform. Telcos need to understand all of that better and act accordingly.