Wednesday, December 24, 2008

Its-a-Thought: It's not about the bundles

Its-a-Thought: "your choice packages," not "bundles."

It was probably inevitable in our commercial culture that the news about product, pricing, and availability would be almost the sole focus of reporting and comment about yesterday's fiber announcement. At one level that really isn't the most important point: ownership of our own resources and the bare fact that the system is real will have much greater impact down the road than today's list of commercial details.

But even on the level of commerce...you know, "bundles" in the usual commercial sense are not really the best focus of conversation. That's because LUS is not offering bundles, not in the usual commercial sense.

Bundles in the usual sense are special "deals" for a range of services put together by the operator that includes a long-term contract and lower prices for an introductory period. The idea is common across business sectors but has become an article of faith in the telecommunications industry with triple-play and even quad-play industry focal points.

In the world of telecommunications retailing bundles do two things, one good and the second bad: 1) they provide a convenient one-stop alternative for consumers weary of tracking 3 or 4 different communications bills, and 2) they serve to lock-in consumers into one provider by making the best prices only available if you take multiple services from that provider. Lock-in works in pretty directly: You can be locked into a contract—like the one-year deals Cox is pushing right now—with a penalty for leaving early to go to a more attractive competitor—like LUS. Lock-in contracts also usually include a promise of a cost increase during or at the end of the contract period. Much of the good deal is a temporary come-on designed to entice you to buy beyond your comfort zone and become dependent upon the service by the time the real price reappears. That's all standard economics. (And one reason why thoughtful people still call economics "the dismal science.") More subtly: the near-monopoly that some users find themselves facing can result in lock-in as well; if a bundle is the best way to eke out a decent price and, for instance, only one company offer decent internet or cell service in your neighborhood you can feel forced to buy their bundle--for the price--even though you'd be better served by choosing a phone from AT&T, cable from Cox, and cell service from Verizon....

Bundles are all about reducing customer freedom in exchange for a (usually temporary) price break.

But that's not the way LUS' bundles work — and why bundles are a misleading way to think about the LUS Fiber offerings. The focus should really be on how much it costs to put together a package that serves you best.

What's missing from LUS' systems is lock-in. 1) There is NO contract involved. The deal you get on day one is the only deal. Leave the moment you want with NO penality. NO programmed-in cost jump because there is no contract to hide one in. 2) There is NO linkage involved. Buy one service. Buy two. Buy three. Buy all the extras, Buy none. NONE of that has any effect on your base price for another service. One price, all the time. The price for 250 cable channels or 50 megs of symmetrical service remains the same. No linkage also means NO penalty for using one service from LUS and one from Cox or AT&T.

That's NOT a bundle in the usual commercial sense. Which is why "bundles" is not the best way to think about the question of getting the best deal on your telecomm services. First ask which services from which providers are best for you? Make up your own "freedom package" —"your choice package." Then add up the real costs for that "package." My guess is that mostly that will be three services from LUS. But you can mix LUS tiers freely and tack on services from a competitor without penalty...or at least no penalty from LUS. Do the math. The real math not the fake "bundle math" the incumbents will try to stick you with.

I can pretty easily imagine customers who will decide to pony up for 50 megs of symmetrical internet, drop all phone and cable services and limp by with cell service and downloadable video. I think that'd be rare. But the point is: LUS won't punish you by jacking up the price on your internet if you drop their phone line. Try dropping Cox's cable and keeping the phone service. Don't think you'll keep the same price on phone...

The reason for the difference, and it can't be stressed too much or too often, is that LUS' consumer is also LUS' owner. LUS is treating you, the customer, with some fundamental respect because, in the end, it is motivated to do best by you, the owner. The privately owned competitors have the same motivation—to do the best by its owners. But, for the private sector, acting in the best interests of its owners is NOT the same as acting in the best interests of its customers. With LUS it is. And, in the end, it is just that simple. We made the right decision on that July 16th, 2005.

So comparing Cox's or AT&T's offerings to LUS' offerings is a little hard. But it's not really apples and oranges. Maybe more like comparing oranges and grapefruit. You'll get your vitamin C from either. But you'll probably find one version goes down a lot more easily.

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