A cellular carrier loses the equivalent of its entire customer base in three to five years, say industry estimates. Not only does churn amount to missed revenue, but increasing industry competition, high subscriber acquisition costs and sinking revenue per subscriber equates to serious loss.
Churn swallows about 2.5 percent per month or between 25 percent and 35 percent per year of a cellular provider’s base, said Tom Ross of Economic and Management Consultants International Inc. Carriers’ books are hit hard by a churned customer because they lose what was invested to acquire the customer in the first place, on average $400, explained Ross. Low-volume users must be on the network one or two years for the carrier to break even, he added. Mike Flanagan, marketing communications manager for GTE Telecommunications Services Inc. in Tampa, Fla., noted average revenue per subscriber is declining between 6 percent and 8 percent every year.
What makes customers leave? Washington, D.C.-based EMCI found more than half of churned customers quit service outright, a result partly attributable to free phone giveaways, said Ross. “It’s like getting a fill-up at the gas station.” Customers “don’t realize the true cost of service,” and later decide they don’t need it, he added. Among those that discontinue service, more than 50 percent quit believing they do not need cellular service. High cost also is a common reason customers drop service.
Remaining churn customers include those who switch carriers, usually seeking a more economical rate plan for their calling habits. Industry has a better shot at holding on to these customers.
Coral Systems Inc., which designed ChurnAlert software for reducing churn, reported that price is accountable for 40 percent of customers who quit cellular service. Network quality related issues account for almost 20 percent, customer service equates to just more than 10 percent, 6 percent leave due to incorrect or inaccurate billing and 5 percent churn because of unsatisfactory voice quality, said Coral. The remaining 20 percent is structural churn, due to reasons including moving, divorce and death.
The forthcoming threat of personal communications services is driving carriers to seek ways to ensure their customers are satisfied. PCS means more options for consumers, said Ross. In Washington D.C., Sprint Spectrum L.P. lures customers by offering service without a contract. Subscribers can pay month-to-month, whereas most cellular contracts today last between one and three years, penalizing customers who break out early, said Ross. Bell Atlantic Nynex Mobile responded to Sprint by adding a no contract option to its various rate plans, but “typically you have to pay a higher per month charge, per minute charge or pay for the phone,” added Ross.
Ross believes churn percentages will rise slightly with PCS coming to market, then taper back to around 2.5 percent after 2000.
Eric Johnson, president of Longmont, Colo.-based Coral, anticipates per customer acquisition costs could skyrocket above $1,000 once PCS rolls out full scale. Advertising and network buildout are among the high costs PCS providers will need to leverage.
Coral’s ChurnAlert and a handful of other products including GTE TSI’s ChurnManager and Waltham, Mass.-based Lightbridge Inc.’s Churn Prophet, aim to identify potential churn candidates before they complain or sign off service. These systems tap into a carrier’s switch, billing and customer service databases to analyze call, billing, activation and personal customer data and weigh factors, including dropped calls, airtime and long distance use patterns. Some systems alert the carrier when a customer meets a predetermined risk threshold. ChurnAlert and ChurnManager interpret and update data every 24 hours. All three programs use Windows-based graphic interfaces, for easy and quick navigation through customer information and churn analysis files.
Subscriber data includes locations, dates and times of dropped calls; use of specific features, payment history, financial adjustments, airtime and long distance use patterns, rate plan, credit status, history of interactions with customer service, fraud history, personal demographics and phone model specifics.
One ChurnAlert feature allows a carrier to determine both its own and the competition’s most efficient rate plan for a given subscriber. In instances where ChurnAlert finds the competitor’s plan makes more money sense, the current carrier has a window of opportunity to preempt the chance that customer may leave.
Johnson and Flanagan agree the effort of reaching out to customers before they voice dissatisfaction or quit service, in itself serves tremendous benefit. It’s personal and it’s proactive.
Ross pointed out, however, “Software can help pinpoint who is likely to churn, but if someone doesn’t like paying the service, no amount of software in the world is going to change their purchase decision.”
