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Big Business to telecoms: Hear us now?
Verizon and BellSouth are only two carriers to make the grade in a customer loyalty survey.
May 23, 2005: 5:59 AM EDT
By Paul R. La Monica, CNN/Money senior writer
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NEW YORK (CNN/Money) - The telecommunications industry isn't exactly known for having great service -- and a study released Monday confirms that many businesses aren't overjoyed with their telecom service providers.

Walker Information, an Indianapolis research and consulting firm that tracks customer satisfaction, conducted a survey of more than 2,000 large corporations in March and found that only 39 percent of respondents felt loyal to their telecom vendors.

"Generally, telecom service satisfaction and loyalty is lower than in the rest of the information technology industry," said Phil Bounsall, a Walker Information executive vice president.

Walker tracked 37 different brands in five sectors of telecom: wireless service, local voice, long-distance voice, Internet service and wireless handsets.

Merger headaches=lost customers?

Among the three voice service categories, Verizon (Research) and BellSouth (Research) were the only companies that businesses cited as "loyalty leaders", meaning that in addition to being satisfied, customers also planned to spend more with these companies. The other companies were either in limbo or lagged as far as the loyalty they inspired, Walker said.

Verizon was cited as the only leader in wireless while it and BellSouth were named leaders in long distance. None of the companies was cited as a leader in local service.

In Internet access, Verizon, BellSouth and Time Warner Cable were named leaders. (Time Warner Cable, like CNN/Money, is owned by Time Warner. (Research) Another Time Warner unit, America Online, was part of the survey but was not named a leader.)

The findings come at a critical time for the telecom industry, as a wave of mergers could create integration woes and compound already strained customer relationships.

BellSouth is the only major carrier not involved in a big merger, so the fact that it already has a strong reputation with customers could give it a further edge.

SBC (Research) is buying long-distance firm AT&T (Research) while Sprint (Research) is merging with wireless rival Nextel (Research). These four firms did not make the cut as a leader in any category. Neither did Cingular, the wireless firm that is majority-owned by SBC and bought AT&T Wireless last year. BellSouth has a minority stake in Cingular.

With this in mind, it will be interesting to see what happens to Verizon, which has agreed to buy MCI (Research). The long-distance company, which was not named a loyalty leader in the survey, turned down several higher bids from another telecom, Qwest (Research), citing customers' preference for Verizon.

Tellingly, Qwest also failed to be identified as a leader in either local or long-distance service.

"Verizon has a chance to leverage customer loyalty in wireless and long distance," Bounsall said.

Good service pays dividends

But are loyalty and customer satisfaction really important or just touchy-feely buzzwords? Walker's data showed there is a tangible financial benefit for the leaders.

The research firm said companies with the worst loyalty scores, the laggards, reported lower annual sales and earnings growth, as well as smaller operating profit margins, compared to the leaders. What's more, stock prices of the loyalty leaders outperformed the laggards by 34 percent over the past five years, according to the study. (Walker does not identify which companies are the laggards.)

But perhaps the most interesting aspect of the study was that businesses don't show nearly as much loyalty to service providers as they do to the companies that make wireless devices.

Of the eight firms tracked in the survey, four were named leaders: Nokia (Research), Motorola (Research), Sony Ericsson and Research in Motion (Research), which makes the popular Blackberry.

And with more businesses substituting landlines with wireless services, that could be a problem for carriers since it suggests that companies care more about who makes their phones than which service they use on them.

"These findings could be the wireless service providers' worst nightmare if they indicate a shift in preference to the mobile handset [manufacturers]," said Iain Gillott, president of iGillott Research, a wireless industry consulting and research firm.

So with that in mind, the true telecom stock winners may not be service providers but the device makers that scored highly in customer satisfaction and loyalty.

"Looking at the results leads me to say that the probability for cell phone unit sales to continue surprising experts for a third consecutive year remains very high," said Albert Lin, an analyst with American Technology Research.

For a look at telecom stocks, click here.

For news about personal tech, click here.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan.  Top of page

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