Cabs, Carpenters, and Comcast

The unexpected perils of monopoly in Philadelphia

Cabs, Carpenters, and Comcast

The unexpected perils of monopoly in Philadelphia

Jeremy Nowak
Jeremy Nowak

Jeff Benjamin, the COO of the Vetri family of restaurants, has written a fabulous book entitled Front of the House.  It is about much more than the restaurant business, although it is a great restaurant business read.

Front of the House also uses the restaurant business to talk about the art of customer service in all its complexity and nuance, its humor and skill.

I would recommend the book for all service industries, but in Philadelphia I would start with the taxicab industry, the carpenter’s union, and Comcast. They could all use a dose of Jeff Benjamin’s wisdom and wit.

In all three instances, they have allowed their monopoly to devalue the importance of service. This in turn has made it easier for new products and options to fill a service vacuum. In very different ways and at very different scales they are writing their operating obits.

It does not have to be this way and for the sake of hard working cabbies and carpenters and a city that has profited greatly from having a corporation like Comcast call us its hometown, I hope they adapt to a changing environment.

Let’s begin with taxis.  The taxi business is a regulated utility in Philadelphia, as it is in the rest of the nation. Taxis are licensed and inspected for such things as car wear, driver knowledge, meter accuracy, and insurance coverage. Part of the regulation involves intentional limits to the number of medallions that are granted.

The effect of the monopoly means it is too often acceptable to offer low quality service: cars that are not clean, drivers that do not know the city, cars that will not take credit cards, and vehicles in a high level of disrepair.  Who do we blame? The regulator? The cab owners? The drivers who rent from the owners?  Or the general market condition of local cab profitability that impedes reinvestment?

There is blame to go around, and also praise for those who try to do the right thing, even when they seemingly do not have to. After all this is a tough business and cabbies that drive our streets do not make much money. Moreover, cab drivers regularly appear on the list of jobs with the highest murder rates.

The cab industry is in the early stages of disruption through on-demand ride services such as Uber and Lyft, which threaten to break up the old utility. In Philadelphia you can see the effect through the loss of medallion value. Only a few years ago it was expected that a medallion would fetch $475,000 and just recently three were sold for $80,000 a piece.

Forget the failed Time-Warner merger! That was merely a symptom. The problem is Comcast has grown through rapid acquisition and its monopoly position. It has not had to build a customer service or innovation culture that will work in an increasingly competitive industry.

Is this just another example of technology breaking up old systems? Yes and No. Cab companies could easily use the same technology if they adapted their business model. It’s also a matter of a system that delivers low quality service being challenged for market share. Nothing too unusual in that, actually.

The reaction to Uber most everywhere has been predictable. There are bans in some cities, court battles in many others, and a war of words regarding the hazards of unregulated service. Eventually the push to ban those services will be hard to support if the insurgent companies get customer service and pricing right. If their service fails, they will fail, no matter how much venture capital piles into them.

In a remarkable memo from the taxicab’s regulator to the cab owners and drivers in its jurisdiction, the Executive Director of the Parking Authority warned cab owners to upgrade their services or continue to face the erosion of market share. The cab industry as we knew it is over, but not cabs. They can still adapt and hopefully they got the message this time.

In the annals of bad customer relations it is hard to outdo the carpenters union’s efforts to disrupt the competitive position of Philadelphia’s convention and tourism business. Philadelphia has always had a building trades monopoly enforced by civic tradition, regulation, machine politics, and intimidation.

You do not build anything of consequence in Philadelphia without the building trade unions.  In suburban counties the unions compete and get some market share but in the city they get the entire market without competition. The prices go up based on the monopoly position.

From the union perspective the higher cost is justified by their quality and sense of a fair family wage. In fact, many of the battles with the trades over the years have been less about the hourly wage and more about their benefit structure and work rules, such as how many persons and at what level of the trade it takes to complete a task.

From the perspective of builders, businesses, and many residents, the cost is too high for the imputed premium. Some say that Philadelphia has Manhattan building costs without Manhattan rental or sales values, which creates even more demand for tax and other building incentives.

Cost issues and labor rule problems damaged the city at its Convention Center where too many union bargaining units (sometimes in conflict over who does what), poor customer relations, and high prices made the Center uncompetitive, particularly when measured against other union towns.

Finally a group of unions – led by the electrical workers – came to an agreement with the new manager of the center that has allowed it to regain bookings. But several unions, most notably the carpenters and teamsters, held out.  To the amazement of the city, the other unions crossed the line when the carpenters and teamsters refused to sign.

Since then the carpenters have tried to get into the agreement through the courts and through intimidation tactics. Last week the Convention Center Authority actually filed a RICO case against some of the individuals involved. The legal filing is stunning in its characterization of events. You can read the filing here.

No matter how it turns out, it is clear that the carpenters overplayed their hand. They may have a monopoly on building homes in Philadelphia but the city does not have a monopoly on convention business. Something had to give.

Other labor leaders knew that the convention center was a broken system that had to be fixed. Getting a lower percentage of a growing share is better than 100% of nothing, which is where we’d be if the tourism and convention industry collapse. Like the cabbies, the carpenters have to face the music of customers that have options.

When it comes to the effect of monopoly culture on customer service, the cabbies and the carpenters have nothing on Comcast. Welcome to the big leagues of bad customer relationships.

I want to love Comcast because they are Philadelphia born and bred and they had the chutzpah to buy NBC in New York City. For a Philly guy, that is way better than, say, beating the New York Giants on a cold winter Sunday.

But a company in the midst of building a second office tower in Philadelphia that contributes greatly to the city’s economy has a problem and it better address it soon. Forget the failed Time-Warner merger! That was merely a symptom.

The problem is the company has grown through rapid acquisition, the management of regulatory politics (until recently) and a de facto monopoly position in various markets. It has not had to build a customer service or innovation culture that will work in an increasingly competitive industry.

My friends at Comcast tell me that service issues are an endemic problem within the cable industry and that Comcast is not alone. In fact that is true. Time Warner may be even worse. But this is not a good enough response. You don’t want to be as bad as the rest; you want to be a lot better.

A few days ago Comcast said that it was devoted to getting its customer service act together and will make investments of $300 million to do so, which includes hiring 5,500 new customer service workers. Moreover, the company is prototyping Xfinity stores, which will have the same feel as Apple (and now Samsung) retail centers. Hopefully this will help turn it around.

Comcast is a profitable company that has done well by shareholders. They have been smart about diversifying into media content and other entertainment venues, and they are investors in new technologies and companies. But the culture of incumbency persists at a time when technology is making it easier for people to disconnect from cable.

Cable companies have always offered people bundles of goods that they mostly did not want, in order to get the channels that they did want. Moreover, the costs keep rising and the service has largely not improved. The result is that cable is in decline. The numbers bear this out, and the decline is occurring among age groups with technological sophistication.

Why? Because all of these qualities (lack of choice, rising price) run counter to what we expect from technological innovation. So with Netflix, Hulu, and the rise of  services like HBO Go, the mobile device is winning out over cable connections, which could seem increasingly like a relic from a different age in just a few years.

Comcast has the capital, market position, and technology to manage change but it does not yet have the culture to do so. It cannot manage these changes through political or regulatory decisions alone. It has to become a customer-focused enterprise.

Throughout the book Front of the House you realize that Benjamin loves customers. They are, he says, “sometimes wrong, but they are always customers.” At one point he says that as long as he gets to touch them, they will be his. As long as he has the opportunity to communicate, engage, and listen, he will bring them back again.

Cabs, carpenters, and Comcast take note. This is the age of consumer choice. And if you do not do right by consumers, someone else will take your place.


Photo header: Pixabay

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