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Credit to BT: a diversification strategy

In our market report, we see several likely strategies for a network operator: pipe, platform, or customer intimacy (with varying degrees of product specialisation). There’s also an “outside the consultant 2×2 matrix” strategy of diversification.

In my email inbox on Friday night I received the following offer:

BT Market Research Survey - A chance to win £500!

As a customer of BT, we would be very grateful if you would participate in the attached survey. The survey concerns a new financial product that BT is considering offering to customers. […]

Only a small number of our customers have been invited to take part, so your chances of winning are good.

The survey opens with the question:

If BT launched a BT branded credit card with a competitive APR (annual percentage rate), a rewards scheme and other features and benefits; would you consider applying for the card?

So BT, a Telco 2.0 poster child (once we’ve photoshopped out a few zits), is clearly considering diversification. (If there was one criticism of BT, it’s that they seem to be enthusiastically following all strategies at once without having fully re-structured first to 100% separate the network and loop from the platform and retail businesses — but they’ve gone far further than anyone else.)

What’s more interesting are the survey questions about what incentives we’d like to see to use the credit card. The options are presumably presented in random order to prevent selection bias, but there are two groups. Firstly, those which specifically integrate with other BT lines of business:

  • Complimentary BT services (e.g. dedicated IT support helpline)
  • Complimentary home telephone on your 12 month anniversary
  • Reduced prices on BT Total Broadband packages

And then a generic list of consumer bribes:

  • Exclusive promotions on theatre/events
  • Reward points exchangeable for cash
  • Sign-up cash bonus
  • Balance transfer cash reward
  • Monthly prize draws (i.e. cash, holidays)

What’s nice about the telco business is the marginal cost of delivery many services is near zero, and you can also provision people with services that they never get to use (“breakage”). So BT could give away calling features and minutes at internal on-net costs with little cannibalisation of existing business lines. A great deal of creativity could be expended on building a rewards scheme that attracts the low-fraud, low-churn, credit-worthy customers you seek.

Unfortunately, when the survey gets to the point of asking you to compare various pairings of credit card offers, it bombs out:

Sorry, but the system has encountered an internal error and cannot go on with the interview at this stage.

Please check back later.

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So maybe my chances of winning weren’t so great after all. Still, BT’s chances seem to be holding up quite well. Others would do well to explore market innovation with the same vigour.

EPILOGUE: Monday morning, and a letter from BT:

“I wanted to you to know that we are withdrawing our BT Communicator service on 31 December 2006. … The new BT Broadband Talk Softphone service replaces BT Communicator service […] and gives you […amongst other things…] Hi-definition (Hi-dS) quality sound when you talk to other Softphone or BT Hub Phone users.”

Seems that the relationship between BT and Yahoo! has dissolved as a result of BT’s decision to fight (rather than flee) in the services space. The home hub aspect provides clear strategic and user differentiation. (A really evil strategy might be to try to insert subsidised BT Home Hubs into third party broadband service, re-capturing the user and customer relationship.) Together with BT’s forthcoming integrated messaging suite, BT Contact, we have the prospect of a direct conflict between the telcos and Internet portals based on service capability and quality, which can only be good for users.

Whilst we’re on BT’s case, they’ve also announced their IPTV product will follow the well-worn path of signing up expensive football rights. Not very “TV 2.0”, but as a defensive move against BSkyB (satellite TV) and NTL (cable TV) their list of options isn’t very long.

At least BT’s strategy appears joined up, unlike T-Mobile’s: I’m at a Starbucks hotspot, but they’ve only sold me the connectivity, not the VPN that’s clearly needed to make working here secure — and their NAT is messing with my usual VPN tunnel in bad ways. Selling partial solutions and expecting the customer to fill in the gaps won’t cut it.

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