Monday, May 17. 2010Some Weeks Begin Better Than Others.....John Linton ....this doesn't look like starting out very positively. Despite everything we have looked at over the past few weeks (and pretty much every day for the preceding six plus years) there seems to be no way that we can find a way to provide competitive ADSL1 or ADSL2 services that will do better than break even in the current residential marketplaces in which we operate by continuing to offer the services based on any of the parameters we have used since we began operations. It seems that 'things' have just got too tough for almost all, if not all, providers of ADSL services and the results have been successive changes to offerings that 'burn up' whatever remained of the 'fat' they previously booked as profit at the end of each year. This has been evidenced in the succession of 'sell downs' by the smaller companies supplying ADSL over the past two years, the ABS half yearly reports showing saturation in the ADSL marketplace, market share decline by Telstra and Optus and an ever increasing 'more for less' in general service offerings (actually that is really more for the same I suppose). It's true that IP costs have fallen significantly over the past 12 - 18 months but as so many people from the larger suppliers are being reported in the Australian communications media are beginning to point out the fall in IP costs is barely, if at all, matching the increase in average IP usage. So we will now have to make some very tough decisions if we are to continue to develop our overall business at anything like the growth rates we have achieved up to today. One thing that we will need to do is to cease supplying services that lose us money. In looking at the April usage reports one thing has become very, very clear. Apart from the standout example of one single ADSL2 customer costing us over $A600.00 more than his/her monthly plan charge we 'lost' over $A400,000 on supplying ADSL services to 20,000 ADSL customers. We need those customers to leave us and transfer to providers that are able to provide them with services that they 'need' and, via their superior buying power/lower operating costs be able to 'survive' doing that. If we proceed to do that it will reduce our revenue by around $A1 million per month (around 20%) which will be a very hard to deal with in the short term but will make every other aspect of operating the company infinitely easier. Finding the 'courage' to do something of this magnitude is not going to be easy but there appears little alternative and I, personally, find the prospect of continuing to subsidise so many people's use of the internet to be beyond my abilities to be able to do - both financially and 'socially'. It's entirely our own/my own bad planning that we have to contemplate such drastic actions but there seem to be no real alternatives. Carelessness in any aspect of business tends to get punished very severely. Not a pleasant thing to have to contemplate doing and something I, personally, have no experience in doing. I'm not sure how to go about it. I suppose the only sensible way is to point out there are better providers than Exetel for people who need to use the internet in the ways these Exetel customers use it and we are doing them a favour for pointing this out to them? I doubt that such a view, how ever well expressed, (and, based on experience over the years, I seem unable to express any view very well) would be well received. Not a very positive thought to begin the 'working' week with but, subject to a 'brain wave', I don't see any alternative. Copyright © Exetel Pty Ltd 2010
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John, why don't you do what other large providers have done and raise your prices so you make and acceptable return. I'm sure you will be surprised by how many 'now profitable/break-even' customers will stay.
Comment (1)
As I've alway thought and sometimes said, Exetel should NEVER have offered the large downloads it has. Off peak limits need only be the same (or slightly more) than peak limits.
You don't have to major in human nature studies to realise that a reasonable number of people are downright greedy and will abuse a service. Reduce your ADSL services to sustainable download limits, and get rid of the leechers. The VAST majority of users are in the low to medium download usage barcket. Cater for them only. Exetel doesn't need users that "require 50GB or more a month". 20 or 30 is fine for the majority. The thought that I may not be able to reconnect to an Exetel ADSL1 service in a couple of months due to greed is not fair to the majority of us, who are low to moderate users. Paul Comments (2)
Paul,
Not being as sensible as you, I have made too many mistakes over the past six plus years. I will now have to atone for those sins by correcting six years of mistakes in 60 days. Comments (12)
I think you could tell people who are costing exetel too much that prices are likely to go up in the future and that they can disconnect of free now. Maybe this will provide them with the incentive to change. Perhaps you can also offer some kind of credit say $50 to cover churn costs for those who churn within the next 2 months or something. (because from the sound of it you would probably save more by getting rid of some of the expensive customers).
I hope you get the changes right for exetel's sake. Comment (1)
We need those customers to leave us and transfer to providers that are able to provide them with services that they 'need'
Is it possible to consider an *Option 3*? 'Change Plans' to a new/current offering? (All new/current offerings of course are profitable) Comment (1)
That;s always a preferred option - but for some 1,000 of the 20,000 unprofitable customers it will not have any appeal.
Comments (12)
If those are the 1,000 worst offenders, what's the problem? If you're able to convert 19,000 unprofitable users into profitable ones with a simple plan change and dump the worst of the worst, why wouldn't you try it? Even if they kick and scream a bit, what's the worst that could happen? They'll cry to Mum and Dad, or possibly one of the forums. Either way, it means 9/10ths of SFA to those of us in the real world.
Either way, I'm genuinely sorry to hear that the recent plan changes appear to have caused Exetel some grief. As a happy (and, I'm guessing, at least mildly profitable) Exetel user, I'd hate to think that there was a situation where a minority of users could cause so many problems for the many. All the best. Comment (1)
Does data usage by a customer directly cost you $/GB? Your internet connectivity cost is based on the peak Gbps, isn't it? What about backhaul?
Obviously the challenge you face is how to resell that bandwidth to your customers in a way which: a) doesn't overcommit your bandwidth -- there need to be strong enough price signals that heavy users will leave enough bandwidth for everyone else. b) doesn't undercommit your bandwidth -- if your data prices are too high you'll have unused bandwidth, which you still need to pay for, and your plan prices will be unnecessarily high. c) the above has to take into account time of day, and user psychology. The most economically efficient solution might be a 'road-pricing' solution -- charge your fixed per-plan costs at cost + margin, and then price bandwidth according to demand (off peak does this, but with only two prices -- full price and zero). So each hour of the day would have a different price, and people could time their downloading accordingly. The price would never be zero. Hopefully these prices would be fairly stable from day to day. But perhaps it's asking too much for customers to understand that sort of pricing well enough to benefit from it. Comments (2)
We calculate the cost of IP data by dividing out IP bills by the number of gigabytes used in any month.
We calculate the back haul (which is more expensive for us than IP) the same way. Comments (12)
It seems to me that calculating the cost to you of an individual customer based on their data use and the average cost of data to you is flawed.
You need to look at the marginal cost to you of that customer's data use: i.e. if that customer downloaded 1GB less, by how much could we reduce our costs? If the customer is using bandwidth which would otherwise be unused, because you need to provision for peak use by other users, than that cost is zero. Comments (2)
20,000,unprofitable users sounds alarmingly high. On the other side, this great number of customers are extracting immense value from their (?grandfathered) plans. It remains an 'unknown' at this stage how would they respond to coercive attempts aimed to get them on the latest set of plans, but this could also become necessary to remain viable long-term.
Does it not basically boil down to prohibitively priced backhaul? I read you saying it is now more costly transiting data 2 km from the local exchange that it is sending same data across the world. Is that not outrageous? Then that is where the blame should go. What needs to happen for (small) RSPs lacking 'scale', is for their cost for vital 'backhaul' become contained to offset rising usage averages and to keep your Exetel products competitive and up to date. Backhaul MUST be sensibly set to some small fraction of the monthly ADSL2 or ADSL1 port rental and present similarly as a fixed (NOT a variable) charge. I believe, right now, such legislation is being contemplated for NBN's fibre modeling, and JL you'd be smart to push for these laws, even if they do come from the big, bad, labor'gubmant'. Comment (1)
'Rad-pricing' Metering 'per GB' has the benefit of being able to make fine adjustments to the rates for peak/offpeak whenever neccesary with short notice.
The downside however is remembering the rates contracted customers are locked into when billing them as well transferring them to the month-to-month rates once they fall out of contract. There is potential for 'bill shock' if the rates were to incrementally increase most months over the contract period. Perhaps this is easily automated? Think of how electricity retailers bill or interest rates. Comment (1)
John,
I may be time to go back to Exetels original position of forcing out of contract users to change plans when a plan becomes obsolete. That way as you need to adjust plans to meet changing market conditions you can be certain that you don't have users left on unprofitable plans. Whilst I'll be one of the first to admit I hated that policy, I would prefer a return to that policy over seeing Exetel disadvantaged. My only suggestion prior to implementing such a change would be that you re-offer your PAYG plans and fine tune your current plans via user engagement. It could also be worthwhile to have someone other than yourself draft the customer communication, or to at least get someone without your emotional involvement in the outcome to review the customer cummuincation before it is distributed. Les Comment (1)
This sounds like the way to go.
It's probably best to 'live with' whatever plans you have under contract at the moment, as the last thing you probably want is a bunch of people whinging to the TIO. Here's a suggestion. 1 - Keep all active contracted customers on their current plan until their contract ends. 2 - For all users who have changed plans in the last six months, allow them to remain on that plan until that six months expires - even though you technically don't need to do so. 3 - Release a range of plans that has limited capability for losing you money and require users to select one at the end of the above times. (Set a date at the end of June perhaps for everyone not matching 1 and 2 above.) If you feel you do have to let go of some users, it might be worthwhile to let them know roughly what they cost you; as then they have little redress against you. Good luck with it all! I don't see growth as the be all and end all in this world - watch http://www.youtube.com/watch?v=F-QA2rkpBSY&feature=youtube_gdata if you want a reason for that statement Comment (1)
I can appreciate the temptation to calculate the direct cost/profit provided by individual customers, but you may also wish to consider that many of your loss-making customers also provide high-value in terms of word-of-mouth (i.e. by signing up the families and doing their support for them). This of course is difficult/impossible to measure, but my experience is that your high-usage customers are more likely to be bringing in new signups, who may fall more into the profit end of the spectrum. I guess what I'm trying to articulate is that if you were to dissuade your top 10,000 loss-making customers from staying with Exetel, that it may cause some unexpected collateral damage.
Anyway, best of luck! Comment (1)
You are undoubtedly right.
However it is an impossible value call to make. Comments (12)
Since another "Paul" has turned up, I'll start using "Paul T" to avoid confusion.
I suspect I'm on a plan that doesn't make Exetel much if any money (NF/20BYOLINE) but ought to be easy to price as it is pay for what you use. So it ought not be loosing Exetel money! However if it were loosing Exetel money, once out of contract I would think it fair enough to reprice the plan. However unlike Les, I'd be a little annoyed if I was forced to change plans to one of the current new ones. I like paying for what (little) I use and being charged at a fair price for usage. As a customer, I'm annoyed at pricing models that companies use that allow someone else to run up a cost of $600 more than their plan because it means that I'm paying more for my plan to cover that person. It happens with ISPs and mobile phones. I generally like Exetel because I'm not paying for someone else's excesses. So as a customer I would like to see companies charge for plan types so that now class of user subsidies another. So for example plans with "unlimited" off-peak download ought to be priced as a group so as to not make a loss. The more low usage users that leave that plan group, the more the price will need to go up. If you chose to require people to move to current plans, then I'd suggest having larger choice of plan types (unlimited, unlimited off-peak, pay for what you use, shaped) but price them within those types so that there is no cross subsidy. (You may only offer some to current users.) Exetel simply won't be competitive with some of those plans but then you can't be so why try? It only means you can't be as competitive in other plans or other technologies. Use market forces to encourage people to adjust. Then they make the decision and feel in control. Comment (1)
I'd just like to say this...
I am extremely grateful for the service I receive from exetel for ADSL1. No other provider even comes close. At the moment I am paying $65 for 1500k,60gb peak, 'unlimited' off peak. I would rather pay $20 extra a month for this than be asked to leave (not that I am an abusive user). So please do not just throw away the ADSL1 users, a lot of us have no where else to go. Comment (1)
We/I have no intention of arbitrarily destroying the business that we have devoted most waking hours for 6+ years to build.
My comments are that we have to have less loss making customers than we have allowed to build up over the past year. Comments (12)
It's true that IP costs have fallen significantly over the past 12 - 18 months but as so many people from the larger suppliers are being reported in the Australian communications media are beginning to point out the fall in IP costs is barely, if at all, matching the increase in average IP usage
With so many data rich services appearing on the web now, people will use (in order to obtain their own Value For Money) all of the quota available to them. Perhaps it is time to make people value their data a bit more by encouraging them to conserve data. One idea could be a set charge for the plan, with an in-arrears discount if they use less than 75% of their quota as an example. Comment (1)
"Since another "Paul" has turned up, I'll start using "Paul T" to avoid confusion."
It's OK Paul T I usually enter PM in the name field and sign off with Paul. I'm sure this blog can cope with 2 Paul's. Anymore, and it may become "apPAULing". ;- Comments (2)
Hi John,
I think you have made a bad decision after another one recently. To dump all 20,000 customers would be your worst decision. I hope you rest for a few days and calm down. As for the top 1000 "data pigs", I would say most of them are not unreasonable. If you scan through whirlpool posts, many of the large downloaders keep asking what is the data limit on the "unlimited" plans that will make Exetel profitable. They are willing to change their behaviour if they know the "limit". Of course you will never publish this limit, otherwise it will be a false advertisment. However, if you force the unlimited off peak plans back to 60G to make Exetel profitable, I belive most people will adapt. There of course will be a few TIO complaints. But if you dump all 20,000 customers, your TIO complaints would be far far larger. (and probably the worst publicity in the ISP history) Comment (1)
Agree with all comments here in support of the notion that price structure should reflect cost structure (+profit).
At many ISPs customers probably pick a plan above what they need to avoid high excess fees or shaping in those months they happen to go over. At Exetel the excess usage fees are so low that I expect more customers pick the 'right plan' for them with the knowledge they are not going to be hit with too big an excess fee. I love the low excess rates at Exetel (not that I ever go over anyway) but I wonder if it does make it harder to compete on face value with plans from other companies because you have more people downloading more of their limit. Also agree that previous off-peak offerings were too generous (and should have been scaled to size of peak data). Good luck, hope it works out! Comment (1)
As I posted on Whirlpool RE: unlimited plans when the unlimited plans were first announced:
I dont want it, its existence negatively affects my connection and it encourages "negative value" customers who use up more bandwidth than is covered by the fees they pay. What a shame it seems to have gone so far the other way with the removal of off peak altogether in the current "O" plans :\ Is it likely that Exetel will return to the sort of value seen on the "NF" plans? They were the exact reason I finally made the decision to get away from a grandfathered Optus plan (and their 'creative' net usage counting) and also the big selling point when recommending Exetel to friends and family. We signed up in Febuary this year on a NF23/NOTEL, and have since signed up a NF20/INCTEL, 3 x WM A, 4 handsets on a business fleet and FD-something (8mbit plan). It'd be nice if the plans we signed people up for hung around a bit longer. Also, from the tone of recent (and not so recent) blog posts, it seems Exetel is moving away from Residential ADSL services... which is all well and good, though I would have thought Residential sales - especially to the nerdy IT crowd that Exetel tends to attract - would translate into business recommendations and sales in the workplace? I assume this is not the case (and you're in a better position than me to know). Looking forward to a return to the NF style plans, even if its with a reduced off peak allowance! Comments (2)
The new plans have a six hour 'off peak' period which is more than sufficient for any realistic user to download large files - I would have thought.
Comments (12)
"The new plans have a six hour 'off peak' period which is more than sufficient for any realistic user to download large files - I would have thought."
More than enough for those who want to download the occasional big file, or even the semi-regular big file. For those who believe that the only use for an internet connection is to download anything and everything, 24 hours a day, seven days a week, it won't be enough. These customers won't be happy unless they can download at the maximum their connection can sustain, all the time, without penalty. You face a tough commercial decision, and I'd like to say there is a magical formula to "fix" the problem, but from what you've posted, you've pretty much considered all the alternatives. Comment (1)
It appears that AAPT, TPG et alia now offer the services that serial down loaders 'need' - not Exetel.
Comments (12)
Ah, I see the off peak is outlined below the plan details as such:
* Downloads between 2 am and 8 am do not count towards your included plan allowance from 1st June 2010 Are people attracted to 'unmetered' off peak downloads really the customers you desire? At least with a (more than generous!) limit + charged excess, the damage of big downloaders to the monthly profit for that account is mitigated by their excess charges instead of being able to run the loss into the hundreds of dollars :-\ I am still totally against unlimited plans, however I am sure Exetel/you have better information at hand to make these decisions. Comments (2)
This is not the first time you have expressed the opinion that an unmetered period is primarily of value for people who want to down load large files.
However this is not the case. It is valuable e.g. for watching online videos from services which do not permit unattended downloads for later viewing. This too has been expressed before, by others. While 6 hours may be plenty to do that, 2am to 8am is not an ideal time. Obviously you need to set the time when usage is lowest, but the graph suggest to me that you could still easily go out to 10am... Also, I note from looking at the combined graph that the midnight and 2am peaks are currently the highest. I can see that would be a concern as your cost is being set by uncharged usage. However if you constrict the unmetered period to 6 hours, and then you are effectively encouraging the large amounts of downloading to happen over a shorter time, so the 2am peak seems likely to be pushed upwards, either increasing your costs or decreasing customer satisfaction... I thought the staggered unmetered times were a brilliant idea and never understood why you dropped them. If people could choose between 2-8, 4-9, 6-10, 8-11 you might get more happy customers and more, lower, peaks. Comment (1)
We could think of something like that but it is messy and subject to customer complaint.
Comments (12)
I think your first step should be to give the 20,000 customers the option to move to a current profitable plan.
It is a big step to ask people to leave. Many exchanges are built out and the chance of losing your ADSL2 connection is a real concern as you have to go back to ADSL1. It is also expensive if that happens. I would have thought the new plans with 50 cents per GB excess have little scope to lose you money. I think telling people to leave should be a last resort after all else fails to make them profitable. The new plans have little scope for people to try to maximise their value by downloading excessively. Sometime it is the account holder’s children who do so. Most never read the forums or this column and have no idea of the issues. Good luck your your decision. Comment (1)
It seems we live in a "dog ate my homework society".
Comments (12)
Better information? I doubt it.
We just have to address the situations we find ourselves in. Comments (12)
Personally I think Exetel has been too lenient for too long, the people at the bottom end of the scale are what pays the wages, the hogs at the top end are sucking the company dry, I'd rather see plans that accommodate 80% plus of the users, maybe not so attractive for 10% or so and just aren't feasible for the top end
Start with the port cost, add your admin costs and an allowance that is generous enough to cover the bulk of the users, say 20Gb, no peak/off peak, no uploads counted just 20gb of download included, being Exetel and the reasonable people that you are make the next 10gb available at something like 25c per gb excess charge, the following 10gb at 75c per gb, anything above that $3 per gb 20Gb would account for most users anyway, going over another 20gb would only amount to another $10 which probably still accounts for a great majority of users, above that are they really profitable anyway, user pays at $3 per gb would either mean paying their way or going elsewhere soon after I think for too long there have been plans that are very attractive to the exact 10% or so of customers that aren't worth having anyway so why market towards them I think if you want to get people into lower plans that are cost effective they also need some sort of reminder to look at their costs, how much are they paying now v's how much are they actually using, I would think for a lot of users (if you could automate this info to make sure they got it) would be surprised if they calculated their past usage out in more of a user pays scenario that they are not actually worse off, a lot of people know they have massive download allowances and don't have to worry, plenty of them though don't have any idea how much data they actually use each month as they don't look Comment (1)
Hopefully this is just a simple idea.
How about setting up an automated system to email monthly usage stats to members? Make this a standard feature of the service, not an opt-in. The idea is to make it easier for users to monitor their usage. I know that there are usage meters and records, but the usage meters become 'invisible' after the novelty wears off, and users have to login to their user facilities to check the records - result is users don't regularly monitor their usage. A monthly email might help to make users more conscious of their usage volume, even more so if it were made clear that prices may rise if average usage rises. What do you think? - good, bad, or dumb idea? Comment (1)
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