ACSI Rankings Still Show Americans Unhappy with Their ISPs

The latest industry rankings of customer satisfaction produced by the American Customer Satisfaction Index show that internet service providers continue to rank dead last in customer satisfaction. That is not unusual. 

I cannot remember a time since at least the early 1980s when network-based services such as subscription TV services did not rank last to near the bottom in ACSI rankings. As usual, mobile service is the highest-ranked of the connectivity services. 

7

source: ACSI 

Perhaps those rankings have something to do with the recurring nature of the charges. Most other subscription services also rank in the lower third of the industry indexes. Most of  the industries in the top half of the rankings sell products purchased episodically. 

As always, some ISPs get higher satisfaction rankings than others. 

source: ACSI 

Some industries that once were low ranked have improved. Airlines provide an example. In 2007 the airline industry had a ranking of 63. Today airlines have a rank of 75. That is very close to an all-time high for airline ACSI scores. 

Over the last four decades, few connectivity industries have improved much, though mobility service has to be the segment that climbed the most. Now scoring about 73, mobile phone service has improved since ACSI began tracking the industry in 2004.

Declining Unit Prices are an Issue for Many Industries; Ability to Scale is the Bigger Issue

Ever-declining price per unit is a common lament in the connectivity business. What we sometimes forget is that similar price drops--often of greater magnitude--also happen in computing hardware, software and services as well.

The salient difference might be that in the computing hardware business, fast retail price declines are offset by equally-dramatic shrinkage of underlying cost of creating those capabilities. 

https://issues.org/jorgenson/ 

Over the last two decades, software costs also have arguably begun to decline at faster rates as well, in part because of the shift to X as a service and cloud computing. Even there, the total cost of ownership can vary over time based on volume. At scale, private cloud might be less costly than public cloud, for example.

Still, services, software, content and communications are subject to the costs of coding, acting, writing and producing those products. 

The amount of non-computing inputs are less subject to the reduction of simple computing or storage costs. Up to 80 percent of the cost of communications is related to the cost of building and upgrading network facilities, for example. And construction costs are only slightly affected by Moore’s Law improvements. 

source: Statista

The point is that lower retail unit costs, over time, drive profit margins and gross revenues in most parts of the internet ecosystem. The salient exception is content. 

The difference is that communications unit costs do not improve as much, with scale, as do other digital products. Cost pressures are an issue for managements in every business and industry. But hyperscalers are able to reduce costs with scale in a way that connectivity providers find much more difficult. 

So it is not so much the declining unit cost, but the inability to scale that causes connectivity providers more pain.  Applications, content or other cloud-based services that are inherently global have a clear advantage there, compared to geographically-bound telcos and access providers.

SMB Marketing Remains Difficult

By some estimates, small and midsize businesses represent around 90 percent of all firms globally, represent 70 percent of employment and contribute to up to 90 percent of global gross domestic product. 

At first glance, the small and mid-sized business segment is lucrative. But most of those organizations cannot be efficiently targeted by business sales organizations. 

Consider that definitions and behavior matter. If you have ever worked for a firm selling to SMBs, you know that segmentation really matters. As a simple “cost of sales” matter, “medium” is easier to target than “small.”

In fact, the vast majority of “small” businesses can only be profitably marketed using the same channels and programs aimed at consumers. Programs aimed at “smaller” businesses start to make sense someplace beyond organizations with 10 to perhaps 50 employees, depending on the industry vertical. 

Firm classifications also vary by country. In most countries, firms with more than a dozen to a few dozen employees are quite rare. 

In many parts of Australia, for example, 97 percent of all firms have fewer than 19 employees. The International Data Corp. definition of “SMB” is a firm with “fewer than 500 employees,” but more than 20 employees. 

source" Small Business Development Corporation 

In many Organization for Economic Cooperation and Development countries, there are not so many firms in the size range of “at least 250 employees.”

In Canada, 98 percent of firms have 99 employees or fewer, for example. 

According to  the European Union, a small business employs between 10 and 49 full-time employees. By some classification systems, medium-sized organizations employ 50 to 250 full-time employees. Others might say mid-size is defined as organizations with 100 to 999 employees. 

But there is a wide range of definitions of “small” and “midsize.” Sometimes midsize firms are defined as having up to 4,999 employees. Many would consider that an “enterprise” or a “large enterprise.”

Midsize firms also can be defined by revenue. A midsize firm might have sales not exceeding €1.5 billion ($1.75 billion) or has a balance sheet total that does not exceed €2 billion ($2.3 billion).

source: World Economic Forum 

Complicating matters further, many “small” businesses are run out of the home, or have no employees beyond the sole proprietor. That sort of business often has buying behavior virtually indistinct from that of a consumer. Many classifications use the term “microsized” to describe such very-small businesses. 

In the U.S. market, for example, 83 percent of all businesses are “micro” sized, having no more than nine employees. 

“Small” firms with 10 to 99 employees represent  15 percent of all businesses, while “medium” organizations with 100 to 499 employees represent just two percent of entities. 

If enterprise is targeted directly with field sales, then “micro” (83 percent of business entities) are marketed through the mass market channels. “Small and medium” organizations tend to be marketed to by partner and channel entities. Think of the role played by resellers and system integrators and distributors in the computing hardware business. 

source: CompTIA

Metaverse Again Raises the Issue: Role is Not Revenue

José María Álvarez-Pallete, When Telefónica chairman says “the metaverse will be the most profound change the internet has undergone since its birth,” and that that “Telefónica will continue to play an essential role in this evolution of the Internet towards the Metaverse because new experiences will be possible thanks to the telcos’ networks,” he is right. 

Without internet access, provided by internet service providers, internet-delivered apps and experiences cannot be delivered. 

But Álvarez-Pallete is right mostly in the sense that, in a loosely-coupled internet ecosystem, apps can run on any compliant network. As has been true with the prior development of the internet, when the architecture is separated into layers, app access is “permissionless.”

source: Wikimedia 

Loosely-coupled architectures have important business ramifications. Among the most important implications is that organizations can participate in value chains without having direct business relationships with other key participants. 

Any lawful app can be accessed by any user with internet access, without the permission of any intermediate participant in the value chain, including specifically any provider of the internet connectivity. That business architecture mirrors the technology architecture of the internet.  

What remains to be seen is whether access providers will be passive or active participants in the metaverse. By design, they will be passive conduits, providing the connectivity all internet apps require. By aspiration, they might do other things; assume other roles; provide other value. 

Still, in a layered, disaggregated, permissionless ecosystem, metaverses can be created and accessed without formal business relationships. How much--beyond connectivity--is possible is an open question for access providers.

Can Telcos Become "Techcos?" And What Does that Mean?

Many telcos--or those who advise and sell to them--say telcos need to become techcos. So what does that mean?

At least as outlined by Mark Newman, Technotree chief analyst and Dean Ramsay, principal analyst, there are two key implications: a culture shift and a business model.

The former is more subjective: telco organizations need to operate “digitally.” The latter is harder: can telcos really change their business models; the ways they earn revenue; their customers and value propositions?

source: TM Forum

It might be easier to describe the desired cultural or technology changes, even without a change in business model. Digital touchpoints; higher research and development spending; use of native cloud computing; a developer mindset and data-driven product development.

Most of us might agree that doing such things is good, but does not necessarily mean telcos become something else. 

The key to possible business model changes comes specifically with the notion that telcos can become “platforms.” And even that overused term is subject to huge differences of meaning. Some use the classic “computing” definition that a platform is “hardware or software that other software can run on.”

Think “operating system” or even containers, program application interfaces, languages or X as a service as examples. In that sense, telcos might hope to become “techcos” by advancing their capabilities as application enablers. 

There is a tougher definition, though. A platform business model essentially involves becoming an exchange or marketplace, more than remaining a direct supplier of some essential input in the value chain. It is, in short, to function as a matchmaker. That is a different business model entirely.

For most of history, most businesses have used a pipe model, creating and then selling products to buyers. 

The platform facilitates selling and buying. A pipe business focuses more on efficiency in its value chain, where a platform focuses more on orchestrating interactions between members. 

The platform allows participants in the exchange to find each other. 

Platforms are built on resource orchestration; pipes are built on resource control. Value quite often comes from the contributions made by community members rather than ownership or control of scarce inputs vertically integrated by a supplier. 

In other words, using a “computer function” definition of “platform” implies one set of changes; using the “business model” definition is something else entirely. 

The point is that as useful as the phrase “we are not a telco; we are a techco” might be, it is marketing jargon. “Being digital” or “moving fast” or “being cloud native” or “boosting research and development” arguably are cultural changes many businesses can benefit from. 

It is not so clear that such changes (equivalent perhaps to the change from analog to digital) necessarily change a business model, though they might often improve the existing model. 

As helpful as it should be to adapt to native cloud, developer-friendly applications and networks, use data effectively or boost research or development, none of those attributes or activities necessarily changes the business model. 

If “becoming a techco” means lower operating costs; lower capital investment; faster product development or happier customers, that is a good thing, to be sure. Such changes can help ensure that a business or industry is sustainable. 

The change to “techco” does not necessarily boost the equity valuation of a “telco,” however. To accomplish that, a “telco” would have to structurally boost its revenue growth rates to gain a higher valuation; become a supplier of products with a higher price-to-earnings profile, higher profit margins or business moats. 

What would be more relevant, then, is the ability of the “change from telco to techco” to serve new types of customers; create new and different revenue models; develop higher-value roles and products or add new roles  “telcos” can perform in the value chain or ecosystem. 

That is the profound meaning some of us would say “techco” represents, if it can be achieved. To what extent can “telcos” earn lots of money--perhaps most of their money--from acting as a marketplace, rather than as creators and sellers of products built around connectivity?

To be sure, if “becoming a techco” has other intermediate value, such as boosting revenues and profits while reducing costs and speeding new product creation, the process would still have value. 

It would perhaps be the business model equivalent of the transition from analog to digital processes overall. That is important, but does not transform a telco into something else, which is what all the verbiage about “techco” implies. 

It is too early to assess whether “techco” is simply a change in marketing hype or something more profound. 

Fixed Network Revenue in Singapore Declining to 2026

Fixed communication services revenue in Singapore is expected to decline at a compounded annual growth rate (CAGR) of 2.2 percent from US$765 million in 2021 to US$683 million in 2026, GlobalData predicts.

In part, the decline will be caused by a steady drop in circuit switched subscriber lines and slower growth in fixed broadband subscriptions. 

source: GlobalData 

Circuit switched subscriptions are expected to drop at a cumulative average growth rate of -0.4 percent over 2021-2026 as users continue to shift towards mobile and internet-based communication services, the company says. 

Voice revenue, in the past the chief driver of connectivity provider service revenue, peaked between 2000 and 2003 globally, so the Singapore trend is not at all unusual. 

Mobility services have driven global revenue growth in the telecom industry for a few decades.  

source: Analysys Mason

Surveys are Difficult to Create and Interpret

Getting meaningful data from customer or user surveys are not as easy as many believe. Samples sizes, survey instruments, poorly-designed questions and research assumptions all affect the validity of results. Word chioce is another common source of error. 

Rank order questions sometimes help to discover relative priorities. Consider information technology professional responses to a survey on endpoint management. This set of responses does show some differentiation of “ability to manage” various elements of the IT environment. 

source: Automox 

Those results are not a normal probability distribution. As often is the case with self reporting, all the organizations perform “above average.” If capabilities really are described by a normal probability distribution, that cannot be correct. 

Sometimes researchers are looking for indicators of “most important/least important” opinions. In such cases, forcing respondents to choose can better highlight opinions about what is  “most important.” 

 

source: Automox 

Harder to control are researcher frames of reference. Any multiple-choice survey must necessarily embed assumptions about a few variables researchers believe are relevant. That bias is among the most-common I encounter as someone who gets asked to take surveys.