One of the roles that regulators have to be prepared to take on if they want a competitive communications landscape, is that of referee, and the FCC in the US clearly understands that it is a sensitive path. The cable operators there have been enabled and protected by early classification of Cable services as something different to telecommunications, which prevented competitive exchange carriers connecting to cable, and there have been other treatments along the way that have helped cable grow into collective rivals to the dominant telcos there.
But the latest decision whereby it has intervened to prevent Verizon stealing back all of the customers that it loses collectively to the cable operators, is one of the bravest decisions that it has taken.
The process, widely known as ‘Unhooking,’ is a way of really wasting rival marketing efforts. We’re not sure how the FCC and the cable operators have managed to piece this together from outside the fence, but it turns out that Verizon collects ‘Local Service Requests’ (LSRs) which are a way of communicating requests for switching a phone customer from one carrier to another, along with details like number porting, and uses them to trigger counter offers.
Using that kind of detail, which is data that belongs to a rival, but which has to be communicated to Verizon in order to make a switch, has been banned by the FCC for some time. Verizon, during the case argued that this data (that someone has ordered phone service from a cable operator) was in fact its own operational data, but this was ignored and refuted by the FCC. Verizon didn’t even run this campaign directly off the LSRs but processed them independently, and then, using a process of elimination, it worked out which, out of all of the requests by domestic customers to cease service, had come about because a cable operator had sold to that particular household.
The Verizon marketing team then focused entirely onto this subset of departing customers, offering them specific incentives, including price cuts, in order to get them to stay. Verizon is losing something like 726,000 lines each quarter right now, but a good chunk of those are fixed line mobile substitution, where they are losing them to their own mobile lines, as well as some to VoIP and wholesalers, but the largest slice is being stolen by cable.
This all means that the cable operators have to work across the board to advertise, market and sell, but that Verizon can focus all of its energy only on those that have accepted the cable offer, and by stopping a large number of those in their tracks, Verizon was having a huge effect on desertions to cable.
Now the FCC has put a stop to it, it will be interesting to see whether that fixed line desertion rate will creep up. Certainly Verizon is doing positive things to cement many of those relationships, selling FiOS TV or other DSL based broadband lines, cheap VoIP deals and bundles with wireless services and there will be a point reached when desertions either stabilize and TV desertions from cable are around the same as those fixed lines from telcos. It will be interesting at that time to see whether or not the FCC will offer the same even hand the other way and stop the cable operators unhooking Verizon FiOS TV wins.
Around the world, this problem is endemic, and it is especially difficult to police among telcos that get most of their competition not from cable operators, but instead from unbundled operators, where they put their own equipment in local telephone exchanges and connect to the same type of network as the telco, with much the same technology.
The Verizon approach is accepted practice all over Western and Eastern Europe and some parts of the Far East and cable and unbundled local loop will never become the same strength of competitor as US cable, until other local regulators take the same approach as the FCC has on this occasion.
Interestingly the ruling over Verizon was passed against the wishes of FCC Chairman Kevin Martin who said that the majority of the Commission voted to allow cable an advantage, even though the marketing practices prohibited were similar to the same techniques used by cable when they provide cable video. He described it as a new law which concerned him, because cable was both being treated as a communications company and not as a communications company at the same time. All previous advice, such as from the FCC Enforcement Bureau, recommended that the Commission deny the cable claims.
In the end, the FCC probably has to swallow past decisions and re-write its interpretation of how to deal with cable. It has been protected from the Telcos for years because it was small and growing, that time is probably now over and both types of organization need to be treated identically going forwards.