Mamen Ponce de León of ZoomNews called me to talk about Tu Me’s recent shuttering, Telefónica’s failed attempt to enter the WhatsApp instant messaging market, quoting me on Sunday in an article on ZoomNews’ website in Spanish about Telefónica’s attempts to explain its constant inability to launch new products, among them social network site Keteke, music and movie download site Pixbox, or its smartphone applications store Mstore.
Telefonica is not alone: incumbent telecos the world over that once enjoyed a monopoly until they were massively privatized in the 1990s have proved themselves unable understand the market, and unable to diversify into areas beyond simply managing infrastructure, despite their huge resources and marketing departments.
The problem with such companies is that they suffer from inertia: corporate culture from the age of the monopoly can take more than a decade to change due to habits instilled over generations and that apply as much to the senior management as to the last person in a customer service desk. We are talking about a culture in which there are no customers, simply subscribers, users who had no choice when it came to contracting the services of a telephone company. It may be unfair to say that this mentality persists in Telefonica to this day: the company has made serious efforts to change, but only recently, and with the arrival of a new generation into management positions with new ideas; approaches to management that are very different to those of their forebears.
In many ways, Telefónica won’t change until its president, César Alierta, an old school manager if ever there was one, retires. This is a man who runs a bank, a tobacco company, or a telco in the same way, focused exclusively on financial considerations, and who believes he really has his finger on the button. I am absolutely convinced that Alierta’s continued presence in Telefónica is holding back the company’s share price in the same way that Steve Ballmer’s is at Microsoft, and that the markets will react with unanimous joy when they both finally step down.
The telecommunications landscape has changed so much over the last couple of decades that the majority of companies in the sector have had trouble in adapting. A century ago, telecommunications was a form of magic, and the companies that provided the service managed this magic. They were indispensable, everything that passed through their cables passed through them. Nowadays, telecommunications is about infrastructure, and all we want from the big companies is that they handle that infrastructure, and keep out of the way of other players who come up with new ideas about what to do with that infrastructure. This is something that for some managers is difficult to deal with, but which is getting in the way of these companies’ development.
At the heart of the matter is the relationship with the customer. I suppose that it is the residual monopolistic mentality: that they are used to having millions of users who have no meaning as individuals; but the reality is that the overwhelming majority of operators score very poorly in terms of customer satisfaction. These are companies that do everything they can to charge you as much as possible if you travel abroad, that hassle you on the phone trying to sell you things you don’t want, that only lower their prices when you threaten to leave, that apply unexpected charges for products that you bought unknowingly, and who trap you with loyalty contracts that seem to just roll on and on and on.
Few aspects of their “service” is better characterized than the loyalty contract: a deal that means holding on to customers who don’t want to be with you, but agree to sell their soul to the devil in return for a phone: they signed, they’re ours, for ever. In the case of Telefónica, we have only just begun to see a change in its customer relations strategy, and this is now 16 years since the company was privatized.
The mentality of these kind of telcos is also characterized by the launch of products that they imagine the customer will choose simply because they are offering it, when the sad reality is the very opposite: we know the company, and so we tend to be deeply suspicious of anything they offer. The mentality within the company is that factors such as size, tradition, or image are a key advantage, and that the customer will also share this magical thinking because, well, why wouldn’t they? These kind of companies rarely come up with new ideas, and tend to simply copy what other players are already doing on the basis that if we do it with more money and more marketing we’ll blow the competition out of the water, something that rarely happens.
What can be done, then, to change this telco mentality? To begin with, these companies have to understand that today’s markets have changed beyond all recognition; clients don’t buy your service because it is the only option available, or because you are big, or because you have more advertisements, but in most cases, for a whole bunch of other reasons.
For example, being seen as a pioneer, or because other people who have used it recommend it, or simply because the company creates a feelgood factor; these can all be important today, much more so than they would have been a couple of decades ago. The “We’re Telefónica” approach means nothing unless you get out there and prove it every day, every time you speak to every customer. Communicating via tedious press releases is the best way of distancing yourself from your customers, in just the same way as having an insane number of offers that nobody in their right mind could possibly understand, and when the reality is that what you are selling should actually be quite simple.
Making your business into something that nobody can understand, with bills that make the Rosetta Stone look like a child’s shopping list, and which only make the customer think: “there’s something wrong here, and I’m sure I’m paying more than I should be.” This only generates distrust, and while this may not be enough to make you switch to another company, it sure as eggs isn’t going to incline you to take up your provider’s latest offer. The sad reality is that for most of us, the operator is simply a necessary evil, like taxes: if you can get away with paying less, you will. If you can switch to another provider and pay less, you will.
Establishing a relationship with the client, not the service a company offers the client, but the relationship in its broadest sense, should be the basis for changing the telco mentality and which, in reality is being applied increasingly by companies with different origins. It is this mistaken concept of what this relationship means that spoils everything the operator does: the problem isn’t just believing that by being big gives you the edge, the problem is in not realizing that when you launch a product, even if it is actually good, you still have to overcome the distrust that most of your customers feel toward you and their disinclination to try it out.
Telefónica is still an important company, playing an important role in the Spanish economy, as well as contributing to Spain’s image abroad. The change from the Telefónica of the last century has been clear for some time, to be fair, but much, a great deal, remains to be done to shed the telco mentality that is still so much a part of the way it does things.
As said, Telefónica is not alone in having failed to adapt to new realities, but are we really going to have to wait until an entire generation of managers with feet of clay retires? If we can bring about change sooner, then there is still time to generate some serious value added.