Switching Providers Isn’t All About Reasons: It’s Just Hard.

Written by: Alysia Lau, Legal Counsel at PIAC

Recently, I took the plunge—I switched internet service providers. Although the switching process itself was as smooth as I could have asked for, the inertia and personal resistance to switching I experienced took me by surprise.

I had been with a major Canadian telecommunications provider for several years and had thought about switching for a good number of them. I knew I could probably get a “better deal” with another provider, had suffered very hostile conversations with customer service, and didn’t necessarily agree with the ethos of the company. All good reasons, right? Yet, every time I called, I got talked out of cancelling at that moment. Every single time. So far I have internet access that works, who knows what could happen if I tried to switch? Could I experience an internet blackout for weeks? Why rock the boat? “I’ll do it another time,” I told myself.

Then, a significant event happened earlier this year which highlighted once and for all that my provider wasn’t for me. I could not risk calling customer service to be talked out of my decision again. So, I decided the only way I could definitively switch was by subscribing to a new provider first before breaking up with my old one. It still wasn’t easy. In fact, as hard as it is to admit, I had filled out all my information with my new provider, before quitting the form at the last minute rather than sending it in. Then I told myself to get a grip, manually completed the entire form again, and hit submit.

That was, in effect, the hardest part. As a visit from the technician was scheduled, I called my old provider and spent half an hour trying to cancel as they clung on to me in every possible way: “Is your new internet installed yet?” “Can you cancel your new order?” “Is the technician on their way right now?” “You could get a refund.” “There is still time!” I resisted the entreaties not because I didn’t feel myself becoming slowly entrapped in the spinning thread of appeals and petitions, but because I couldn’t. I was already gone.

I have been struck by comments made by high-profile regulators – institutions created to protect the public interest – which have lamented that telecom consumers are in part to blame for their strife and complaints about high prices, low data caps, and throttled broadband speeds. Why don’t consumers just cancel their service and switch providers? Why don’t they try to negotiate with their service providers? Why don’t they do in-depth research into their contracts instead of relying on customer service representatives?

These statements discount an array of reasons which have formed the foundation of today’s consumer protection laws and regulations, including:

  • The significant imbalance in bargaining power between companies and individual consumers;
  • The traditional “take it or leave it” nature of service terms and contracts;
  • The disparity in resources available to a company and to a consumer in cases where “something goes wrong” or a dispute arises;
  • The complexity of the telecommunications market and the high cost of information acquisition;
  • The effect of high switching costs and barriers such as bundled services and fixed-term contracts; and
  • The fact that a market of goods or services rooted in the ability of a consumer to “negotiate” a better contract creates an inequitable system which vastly favours consumers who traditionally have more time, independence, income, knowledge, education, mobility, and confident language skills.

However, regardless of these reasons, and rather than going into the stormy debate about the competitiveness of Canada’s telecom market and coordinated pricing in the wireless sector, I thought I would simply share my own personal anecdote.

What did I learn? Switching is just hard. I am a consumer advocate and was as entangled in the incumbent web as anyone else. It is not merely a matter of being at the mercy of any penalties your old telecom provider may impose on you, or having to pay upfront for a new modem and installation costs, although all these things matter—inertia and fear are true consumer barriers. It’s a matter of being human, and companies know exactly how to take advantage of it.

Consumer inertia has been the study of behavioural economists, business administrators, psychologists and other researchers for decades. While various models have been created to predict consumer willingness to switch, the basic conclusions made by researchers have widely resonated with one another. Notably, following the liberalization of markets which were formerly dominated by monopolies, economists expected consumers to actively seek out and switch to the best companies. This would, in effect, theoretically lower prices and increase service quality overall. Yet, while this has happened to a certain degree, consumer behaviour has not met the original expectations of creating highly competitive markets; in fact, the majority of consumers, even when offered the option, regularly choose to stay with their incumbent provider.

While there have been several explanations for this, I will only focus on a few here.[1] To begin, the telecommunications market is unique not merely because of the fast-paced changes in technology but also because consumers must make complex decisions related to several different products and services at the same time. Thus, instead of deciding which brand of dish detergent to buy, a consumer is considering equipment, wireless modems, broadband speeds, data allowances, rental or purchase options, and so on. Moreover, a consumer must make a value judgment of a telecom service based on forecast usage even though there is a great deal of uncertainty as to how the service will actually be used by the consumer or by their dependants. This is because usage of communications services is influenced by, and can vary significantly based on, circumstance, experience, relationships, and day-to-day interactions and events. Studies have shown that not only are consumers reluctant to switch, but when they do, particularly in electricity or telecom markets, they end up subscribing to “sub-optimal contracts”—many end up paying more than they need to for their actual usage.

Moreover, researchers have identified various consumer behaviours which affect willingness to switch and which are exacerbated in markets such as telecom where the “consumer surplus” – or net gains a consumer would make by switching – are difficult to visualize in the present moment. For instance, the “endowment effect” describes the phenomenon that individuals tend to value a good already owned more than the same good not yet owned. Similarly, the “loss aversion” theory arises from findings that consumers tend to assign twice as much “weight” to giving up a good than to gaining that exact same good. According to Lunn, in the telecom sector this means that “consumers may be foregoing substantial gains, because alternative providers would need to provide several times the consumer surplus of the current contract before consumers would be willing to switch.”[2] Ultimately, incumbent companies tend to have the strong brand advantage.

So, what is my message to regulators? Consumers need all the help they can get, particularly in a highly technical sector that is challenging for the average customer to understand. After you have done all that you can to empower them, then give consumers time – time to adjust, to reconsider, to adapt – and give credit to those who did make the change. When was the last time you switched your telecom provider?

By the way, I am now the happy customer of a small, local non-profit ISP. My monthly cost is lower, my broadband speeds and data caps are higher, and I just feel good about the provider I’m supporting. So pluck up your courage, and if you believe it’s right – make the switch. It’s worth it.

 

[1] This research is derived from a number of sources, including:
Arthur Fishman & Rafael Rob, “Consumer Inertia, Firm Growth and Industry Dynamics” (2002), PIER Working Paper 02-034, online: SSRN;
Ali Hortaçsu, Seyed Ali Madanizadeh & Steven L. Puller, “Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market” (2015), National Bureau of Economic Research Working Paper 20988;
Anja Lambrecht & Bernd Skiera, “Paying Too Much and Being Happy About It: Existence, Causes, and Consequences of Tariff-Choice Biases” (2006) 43 J of Marketing Research 212;
Pete Lunn, “Telecommunications Consumers: A Behavioural Economic Analysis” (2011), Working Paper No. 417, online: ESRI;
Nitin Mehta, Surendra Rajiv & Kannan Srinivasan, Active Versus Passive Loyalty: A Structural Model of Consideration Set Formation (2001), online;
Jeffrey T. Prince, Relating Inertia and Experience in Technology Markets: An Analysis of Households’ Personal Computer Choices (2010), online: SSRN; and
Patrick Xavier, Behavioural Economics and Customer Complaints in Communication Markets: A report prepared for the Australian Communications and Media Authority (ACMA) in connection with the public inquiry “Reconnecting the Customer” (Canberra: Australian Communications and Media Authority, 2011), online: ACMA.
[2] Lunn, ibid. at p. 10.

Leave a Reply

Your email address will not be published. Required fields are marked *

Personal Information PIAC does not retain any of the information you enter here
Place enter a name
Place enter a valid email
Place enter a valid email