Plotting Surprise Attack on Cell Phone Market, Golan Telecom Caught Unready for Customer Wave

New virtual cell providers are struggling in the first weeks of the telco revolution to keep up with an onslaught of new customers, but HOT was better prepared with staff and service centers.

"Most people can't reach us on the phone," admitted Michael Golan, CEO of Golan Telecom, on last week's popular radio program "All Talk" hosted by Gabi Gazit. "We've been swamped with new subscribers, to whom we extend our thanks. I think such a wave of new customers is unprecedented in the communications market. I regret the complaints, but they are actually relatively few in number.

"We still lack 100 phone representatives, which we are currently recruiting. Once they are in place, we will be able to respond to requests in a timelier manner," promised Golan, in his French accent - which may calm mellow clients in Provence, but may not work as well on local Mediterranean temperaments.

Since entering the cellular phone market three weeks ago, the new virtual cellular companies Golan Telecom and Hot Mobile have signed on more than 100,000 new clients, averaging 6,600 a day. Of these, 42,000 have switched from other providers.

The move has not been particularly elegant. The impressive ads and displays offering attractive packages for NIS 89-99 a month worked their charms, and customers flocked to the new companies. But they could not respond to the onslaught, and complaints started to fly.

Joining Golan Telecom can only be done online. SIM cards are sent to clients by mail, and ongoing issues are managed by a call center. Even without the stress of having to deal face-to-face with company representatives, the process of signing up did not go smoothly. Problems included long waiting times due to overloaded call centers, problems with transferring numbers, difficulty receiving calls from Bezeq lines, as well as problems contacting emergency phone numbers or 1-800 numbers. All of these resulted in extra charges on customer SIM cards.

At Hot Mobile as well, new customers did not enjoy an easy integration. Company employees, spread out over 19 call centers, were unable to handle the masses of callers. There was much disarray at service centers. Customers reported dealing with representatives who had too much on their hands, with phone numbers that were lost when transitioning to the new service. There is already a move to file class action suits against both companies.

Only the price matters

While the revolution in the cellular market constitutes a huge achievement, the Israeli herd mentality poses problems. The public bombarded the opening of the first McDonald's outlet in Israel, in October of 1993. It also rushed to the opening of the first Cellcom service center, in December 1994, when the company broke the monopoly held by Pelephone. In April 2001, thousands descended on the doors of the new IKEA store before its first opening in Netanya. These are just a few examples.

In retrospect, Hot Mobile and Golan Telecom could have predicted the same scenario and made appropriate preparations, and thus achieved a more elegant entry into the cellular phone market. However, experience shows that, in the long run, one can rely on the forgiving nature of the Israeli customer, even after a creaky launch. Thus, despite numerous mishaps in its first days of operation, Cellcom has become the leading mobile phone provider in Israel.

"Creaky launches have several causes", says Eyal Maoz, an expert in marketing strategy at the Ono Academic Center. "Companies initially embrace a pessimistic forecast for success, with investors being very cautious in the first stages. Furthermore, we as customers also share part of the blame, since we are guided almost exclusively by price considerations. We don't choose cellular phone companies based on the quality of service they provide, but only according to price. The companies are aware of this and take shortcuts in the quality of service offered. The initiation of Cellcom was a disaster in terms of service provided, with many phones not working. Despite this, they ended up leading the pack." In other words, competition exists only with regard to prices, not service.

The more veteran cellular companies, while raking in a fortune, caused public dissatisfaction and even outrage when it came to services they provided. The biggest segment of public complaints reaching the Consumer Affairs Bureau has for many years had to do with cellular phone companies. It is possible that the logic driving many consumers is that, if the service is poor in any case, at least it should cost less.

"In the American market, there are cellular phone providers that target a population which is more responsive to lower prices, while others target people seeking better quality. While the latter charge higher prices, they control a sizable portion of the market and still remain quite profitable. For example, a company working with the business sector cannot afford not to have a representative immediately available, or not to have a functioning backup system when problems arise," says Maoz.

"In Israel, due in no small part to consumer mentality, companies operate on the edge, with no margin of error. It is true that for a long time they made huge profits on our backs, but the current corrective measures may have been exaggerated. In six months, the service centers will no longer be able to provide what is offered now. This can already be seen. For example, after waiting for more than half an hour at a service center of one of the larger companies this week, my son was told that the service required could only be obtained online. Things will only get worse. If this had happened in the United States, the center would have been burned down."

Prices will eventually rise

Many people associated with the cellular phone market do not concur with the gloomy picture pained by Maoz. They note that, while it is indeed irritating when 400 people show up at a service center at the same time, the entry of a new company into the market in any area always initially evokes a herd mentality. However, others claim that the Israeli customer does have an awareness of quality of service, and will not necessarily put up with bad service, even in exchange for lower prices.

"Larger companies generally base themselves on a statistical model. They can maintain a system that is geared toward a given value of product or service, whether it be in a supermarket, phone company or fire services," explains Amnon Shaked, previously a senior manager in communications. "There are always considerations of costs and benefits. A decision must be made to determine the desired level of service or product one strives for at a given cost. Usually, one strives for values that are slightly above the average. However, things don't hold up under pressure. For example, following a terrorist incident, the cellular phone services tend to collapse. In the case of the new phone companies, they probably prepared a service system based on their projections, and were pleasantly surprised by the onslaught of customers, although they were overwhelmed and thus provided inadequate service."

A similar scenario occurred when the fashion chain H&M opened, adds Shaked.

"The feeling was that these companies launched their products before they were quite ready. Each one wanted to be first out of the gate, so not all tests were adequately performed and not everything ticked as well as it should have," says Uri Licht, head of the research division at I.B.I. Investment House. "Apparently the companies were surprised by the initial pressure and were caught unprepared to deal with it."

There is a lesson in all of this. It was argued that these companies could afford to lower prices based on trimming their expense structure. It turns out that a system such as this cannot be based solely on the Internet and call centers. Licht estimates that eventually the services provided by Golan Telecom and Hot Mobile will correspond to those of the bigger companies.

"It appears that Golan wanted to catch the market by surprise," Licht says. "They succeeded in this, and although not all problems have been solved, things seem to be working. Hot Mobile was prepared with service centers and 170 sales representatives, and thus experienced a smoother launch. We should remember that we always hear the people who complain about receiving bad service, and not those who are receiving adequate service."