BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

October 17 2013
by Todd Hixon

The Divine Right Of Telcos To Abuse Customers

Banks are most often accused of customer abuse, but Telcos are equally good at it. This is never more evident than when traveling internationally.

Hertz now rents mobile bandwidth; photo via Todd Hixon.

 

Experienced travelers of my generation have stories about a $500 unexpected charge for a long call made from a hotel room overseas: through the 1990’s overseas hotels (working with the telcos) had a monopoly on convenient access to the international telephone network and charged $4-$5/minute, with notice usually given in the fine print. That’s mostly irrelevant now, thanks to innovation and entrepreneurs. Cellphones bring the charges down to ~$2 per minute and make them predictable, since one is always dealing with the same pricing scheme. For longer calls there is Skype at about 2¢/minute.  Skype began as a venture-backed company built by two European entrepreneurs. When I travel, I find that most longer calls can be scheduled for a time when I can use Skype.

Once the innovators, the mobile carriers are now the quasi-monopolists, and they have shifted their focus to data.

I’m accustomed to constant data access in the U.S. and find it very hard to schedule data needs: checking e-mail while waiting in line, sending a “running late” message or looking up an address in a cab, checking flight status with Tripit, or using Google maps in a strange city. I’ve tried going without on my last couple of trips overseas, and it is a true pain.

AT&T charges about $20/100 MB for international data (Verizon doesn’t really provide it), or $200/GB*. That compares to a U.S. price of about $10/GB: a 20x multiple. Do you think it costs that much more? This is customer abuse, pure and simple.

To my delight, on a recent current trip to Australia and New Zealand (“ANZ”), I found an alternative. When you rent a car from Hertz in ANZ, they offer a mobile wifi hotspot for about $8/100 MB, 40% of AT&T’s price. And a mobile hotspot does more than make your cellphone data-capable: it supports five devices: laptop, tablet, wife’s cellphone, etc. I snapped this up.

Wherever you see a quasi-monopolist abusing customers, that’s a place to look for entrepreneurial opportunity. Sometimes it’s a corporate innovator, as appears to be the case with Hertz ANZ. Sometimes it’s a start-up, like Skype. It’s never easy, which is why the monopolists gets away with so much for so long. And they will fight hard and sometimes dirty to kill the innovator. But it is possible, as the examples show. And, when these innovations succeed, the profits can be sweet because the monopolist has made the margins deep, and the sheer satisfaction is even sweeter.

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The data is actually sold in buckets with no refund for unused MB, so the effective price is higher. But the same is true for all of the options I am comparing, so the comparison is fair.

This post first appeared at blogs.forbes.com/toddhixon on April 16, 2013.

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