The incumbent phone company can shape the telecom market in a region. Verizon holds that title in the Philadelphia market.
Verizon is a behemoth. Mostly due to its wireless service, Verizon has built itself into one of the most well known brands in the country.
I worked for US West, which became Qwest and now is CenturyLink, the incumbent provider in 14 western states, including the Phoenix market, where I was located. CenturyLink is on the outside, looking in, at the Verizon-AT&T duopoly. That’s despite operating in more states than Verizon or AT&T. Why is that?
In the 90’s US West needed money and sold its wireless network. At the time, people still ordered home phone service. In fact, most homes had two lines - one for phone calls and the second for internet access.
In 1997, Airtouch was the second largest wireless provider, behind AT&T. They acquired US West’s cellular network that year. US West sold the division to rid them of some debt and focus on their core services - phone service and internet access.
Basically, US West reached a fork in the road and chose traditional phone service over wireless. It sounds crazy now but this happened at the peak of the internet, when companies like Pets.com were receiving millions in venture capital. Internet T1 lines were going for over $1000 a month and businesses were ordering them like toner.
At the same time, wireless was hugely competitive and the belief was wireless would be more of a regional business. When you bought a wireless phone in the nineties you’re only concern was whether or not you’d receive adequate coverage in your hometown.
Here’s what happened. The tech boom exploded. Turns out people weren’t too keen on ordering dog food on the internet and having it shipped to their homes. It made more sense to buy dog food when you were buying your own food. All the companies buying T1s from the local phone company and trying to resell the bandwidth to local businesses realized that business model didn’t work. Cable modems and DSL became prevalent and replaced second home phone lines and cannibalized the phone companies T1 business. Most of the smaller internet service providers went out of business and millions of fiber miles were sold for pennies on the dollar. New competitive exchange carriers entered the market with much lower overheads and little or no debt. The telecom industry became very competitive and prices dropped.
Meanwhile, wireless took off. The smaller regional networks were bought up by AT&T and Verizon. Those companies realized that people were replacing their home phone service with cell phones, except instead of having just one or two home phone lines, people were ordering cell phones for every person in their family. Wireless customers were stickier. Customers couldn’t buy a phone just anywhere and then plug it into a wireless network; they needed to purchase their equipment from the wireless provider. In order to bring down the cost of the phones, people were willing to sign term agreements. Number portability wasn’t available and customers didn’t want to lose their phone numbers.
Maybe most important, because wireless was primarily a consumer product, advertising had to be widespread. The advertising that Verizon and AT&T conducted for their wireless services helped build their phone business and brands. The people that were purchasing network services for their businesses were affected by their experience with their personal wireless devices. It’s no surprise that the two largest wireless providers are also the two biggest telecommunication companies.
When companies are big and successful, they can restrict whom they do business with. Alternatively, in Phoenix, US West-Qwest-CenturyLink was scrambling to retain customers and revenue; they were willing to do almost anything to win new business. When CenturyLink acquired Qwest, it retained Qwest’s channel integration program. Channel integration is a process that allows an agent of CenturyLink to work a deal directly with one of their direct sales reps. Agents are independent contractors that are authorized to sell a carrier’s services. Typically a carrier retains two sales channels, an agent channel and a direct sales channel, and they seldom work together. With channel integration, customers get the best of both worlds; they’re able to deal directly with the carrier and receive value adds, like project management and vendor integration, from the agent. With channel integration, when a deal closes, both the agents and direct sales reps receive carrier compensation.
In Philadelphia, Verizon barely has an agent channel. Most telecom agents won’t work with Verizon because they don’t think they’ll be compensated. If I want to help a Philadelphia based business reduce their telecom expenses, I need to look for alternatives to Verizon.
By limiting their involvement with telecom consultants, Verizon is basically controlling the information that is being delivered to consumers. If only Verizon employees can sell their services, business customers will only be informed of certain products and services. Certain price plans might not be made available.
In Phoenix, channel integration helped keep CenturyLink’s account managers honest. If they weren’t doing right by their customers, by placing them on the best pricing plans, etc., an agent could swoop in, show the customer potential savings and take over the account. If you think phone company account managers would normally operate with their customer’s best interests in mind, know that they are typically compensated by their customers’ total billed revenue. If they lower a customer’s bill, they’ll make less money.
To summarize, Philadelphians can be thankful that they are serviced by a financially stable phone company that can offer just about every telecom service in existence. But financial stability comes with an abundance of control and Verizon’s customers might not be experiencing the benefits that result from a supremely competitive environment.
John Gelhard, originally from Devon, returned to the Philadelphia area after spending several years living out West. He is now Director of Sales & Marketing for CarrierBid Communications, a telecom consulting firm and agent with offices in Philly and Phoenix. He can be reached at 888-706-5656 x 701 or by email at firstname.lastname@example.org.