Wholesale Carriers Wise Up

My firm, ATLANTIC-ACM, just wrapped up its sixteenth annual study of domestic long-haul wholesale customer satisfaction across leading US wholesale carriers. In the 2010 U.S. Long Haul Wholesale Carrier Report Card, we logged some noteworthy trends, including product satisfaction scores moving in the opposite direction of wholesale customers’ satisfaction with product prices. When compared with other key metrics, that creates unique opportunities for wholesale providers.

The objective of the study is to provide impartial customer feedback across all domestic long-haul wholesale providers. Most carriers solicit some form of direct customer feedback, but without getting a truly impartial review across multiple carriers, it’s impossible to accurately evaluate the results of those efforts. A customer may tell the carrier that a price is too high and its provisioning is too slow, but it may be that that same customer believes this is the case for all providers. Or, because a customer knows the feedback is going directly to his sales rep and doesn’t want to tarnish the relationship, he may say everything is just perfect, even when such a statement is untrue. The Carrier Report Card facilitates customers’ ratings (on a 1-10 scale), for all carriers those customers use, at key touch points – like sales reps, provisioning etc. – as well as product quality and price. This year's results are based on more than 1,000 individual carrier reviews.

To provide some context, price has always been the top purchasing driver in the domestic long-haul wholesale segment. In similar studies looking at metro wholesale, business services, or even global wholesale services, price is sometimes secondary to network performance, but in the domestic wholesale arena price has always been priority No. 1. Hence, in this particular wholesale space, there have long been disproportionate opportunities for aggressively priced wholesalers to capture share. In other words, cheaper often won out over better. While most customers demand high quality, they are willing to gamble from time to time on lower-cost providers if they deem quality to be adequate. However, this year we saw a dramatic drop in price satisfaction across virtually every wholesale product, market wide.

This decline in price satisfaction is most likely the result of retail pricing pressures in current economic conditions, combined with a firmer stand on margins taken by the ever-consolidating list of wholesale providers. As a result, the potential for wholesalers to capture share with pricing strategies is as strong as it has been in the past fifteen years. While the last outcome any of us wants to see is another race to the bottom, this data suggests that the domestic long-haul wholesale market is becoming a more level playing field.

This reality is amplified by another key trend — rising satisfaction with wholesale products. Although satisfaction with voice products remained fairly flat, there was a 5 percent increase in overall satisfaction with the quality of wholesale data products. Additionally, the greatest price dissatisfaction tends to correlate to products for which spending is projected to increase the most, yielding opportunities for precision pricing strategies around revenue growth opportunities.

A situation in which customers are happy with products but unhappy with pricing suggests there is finally some stability in wholesale pricing. Today's wholesalers are the survivors of yesterday's market bust — Darwinian champions, if you will. While we believe that some market-savvy wholesalers will engage in strategic pricing and promotions, it’s far less likely that irrational, unsustainable pricing will emerge, as happened in years past. Cheaper will no longer triumph over better.

Old-fashioned, price-for-value competition is the hallmark of a free and healthy market, and gone are the days of carriers perpetually bleeding red ink in hopes of somehow making it all up in volume. To the contrary, today's managers are taking pride in their contract discipline throughout the economic downturn. And that's a good thing.

Fedor Smith is president of ATLANTIC-ACM, a provider of strategy research, consulting and benchmarking services to telecommunications and information industry companies. An expert in niche- and channel-based marketing and operations management, Smith specializes in customer satisfaction and benchmarking projects for ATLANTIC-ACM, where he oversees proprietary projects as well as the firm's Carrier Report Card series, which serves as the telecommunications industry's principle source of benchmarking tools. In addition, he has authored several studies on telecommunications industry growth and opportunities. Prior to joining ATLANTIC-ACM, he worked at Alloy Media and Marketing in New York developing youth-oriented marketing programs around the evolving technology consumption and adoption habits of high-school and college-age consumers. He holds a degree in history and economics from Hamilton College.