Could the major telecom operators increase prices on customer bases already reeling from general cost-of-living increases and other economic uncertainty? Executives from AT&T and Verizon both seemed to leave the door open to that possibility this week, but new research EY suggested that could be a very risky move.
Both Verizon CEO Hans Vestberg and AT&T COO Jeff McElfresh, speaking separately at this week’s UBS Global TMT Conference, hinted rate hikes could be on the table as their companies continue to look for ways to meet expectations and maintain financial health amid economic uncertainty.
Vestberg said price increases in some areas could be balanced with price cuts in others, while McElfresh suggested a similar “balanced play,” with rate hikes as one of many levers that AT&T could pull in combination with one another to improve ARPU and its overall bottom line. He said, “Do I think that there's an opportunity for us to adjust and tune our product offers and pricing in the future so that we have some ARPU accretion and still have that possibility in the future? I absolutely do.”
These comments come as EY issued a report titled, “The top 10 risks in telecommunications,” which identified “Insufficient response to customers during the cost-of-living crisis” as the No. 1 risk operators currently face.
An EY survey found that 60% of customer households that responded “are worried about future increases in broadband subscription prices.” Furthermore, 45% said they believe they overpay for content services and 44% said they believe their broadband provider “doesn’t do enough to direct them to the best deal.”
Tom Loozen, EY Global Telecommunications Leader, told Fierce Telecom via email that these concerns have been visible since the pandemic and customers only have become more sensitive to them as other economic pressures have grown.
“Ensuring that vulnerable customers can afford connectivity became a regulatory priority during the Covid-19 pandemic, and the cost-of-living crisis has heightened its importance,” he noted, adding that some operators have responded–often pressured by regulators–with mixed approaches similar to what Verizon and AT&T suggested. But they also need to be careful how they couch any discounts as well.
“Some operators are prioritizing social tariffs for low-income groups, while others are reconsidering their approach to mid-contract price rises,” Loozen said. “Our research suggests that many consumers find discounts and introductory offers difficult to understand, so operators should take care to communicate any price adjustments with care and transparency.”
Though historically there have been cases in which operators have tried to reason with customers by linking price increases to rising inflation, the EY report concluded that customers “are unlikely to welcome additional price increases in the current climate.”
How they respond–or not–to customers rate concerns is not the only potential quagmire telecom operators are facing. Among other top risks identified by EY, operators face the possibility of “underestimating changing imperatives in security and trust,” as well as the “failure to improve workforce culture and ways of working” at a time when many industries are dealing with rapid change in that area. Other risks include the potential for “poor management” of their sustainability agendas and the possibility they will be unable to accelerate efficiencies through digitization migrations.
Regarding the workforce changes, Adrian Baschnonga, EY Global TMT Lead Analyst, told Fierce Telecom, “Hybrid working is already a reality for organizations, and telcos are no exception. Looking ahead, telcos should structure their approach with intent, ensuring that remote working is factored into workforce technology decisions. In the longer-term, it’s vital that hybrid working models can flex to broader enterprise transformation programs. Recognizing the new physical and digital realities of the workplace will help telcos ensure their organizational cultures can thrive in the future.”