Wireless Carriers Seek Churn Downturn

Competition can be great for consumers but terrifying for vendors, a maxim being put into effect in the cellular services realm. Consumers now find themselves besieged by a wide variety of carrier bonuses, such as free handsets and calling plans that feature thousands of free minutes. As a result, a growing number are switching services (a process dubbed “churn”), and their decisions are making it quite difficult for carriers to make a profit.

“Finding ways to reduce churn is the number one initiative for just about every wireless carrier,” said Paul Hughes, a director at market research firm the Yankee Group.

Churn has always represented a significant market challenge, but recently the numbers have been steadily rising: market research firm In-Stat/MDR found that last summer approximately 20 percent of customers expected to switch carriers in the next 12 months, compared to about 15 percent of consumers surveyed in July 2003.

One reason is that local number portability regulations, which went into effect at the end of 2003, now enable users to switch carriers but keep their numbers. “Many business users did not want to switch services and then lose their company telephone numbers,” said Hughes.

Good Deals

Fierce competition has been another factor in consumers’ willingness to switch. Carriers have been developing new promotions to convince consumers to trade in their existing phone plans for alternatives.

Cost is often a key concern for consumers, and carriers have been offering more plans with low prices and oodles of free minutes. “In a growing number of areas, consumers can find really great deals on wireless services,” said Dan Baker, director of OSS research at market research firm Dittberner Associates.

Bundling has also become a popular option. Rather than market one service, carriers push services in which local, long distance, Internet access, wireless, and even video services are included in a set package. Qwest Communications, for instance, offers users a service pack that includes wireless services, landline services, and Internet access.

Customers are attracted to the new packages. “We’ve found that close to half of all consumers are interested in bundled services,” noted Clint Wheelock, a director at In-Stat/MDR. Convenience is part of the lure: All of the customer’s monthly charges are on one bill. In addition, the suite is often cost-efficient: carriers usually include a discount of 10 to 20 percent on their services when users opt for the bundled package.

Giveaways have also become commonplace, and many carriers now provide new users with high-end handsets as part of their service. Cingular includes Samsung X427M handsets, which are designed to support data as well as voice, with its service.

The Nitty Gritty

While the various marketing ploys grab much of the headlines, consumers are just as interested in nuts and bolts service items. “When consumers walk into a cellular store, they expect the staff to be able to answer basic questions about how the service works, but that isn’t always the case,” Yankee Group’s Hughes told TechNewsWorld.

Other areas that consumers view as important revolve around billing: Customers desire bills that are easy to read and understand, a challenge since billing plans have become more complex. Users expect to encounter courteous and helpful customer service representatives when they call with questions about their monthly bills. While such requirements may seem obvious, carriers have only had a checkered past in fulfilling those desires.

In-Stat/MDR’s Wheelock said T-Mobile USA made improving customer service a priority in 2004. “The company focused on not only improving its internal customer service programs but also worked with third parties so their service would be better,” he said. As a result, its customer satisfaction ratings increased dramatically during the year. The emphasis was probably a good idea because In-Stat/MDR had found that T-Mobile subscribers had the shortest tenure, which means the firm has the industry’s highest churn rate.

Out of Range?

Network coverage is also a consideration when customers switch services. Many users are not satisfied with sub-par in-home coverage and concerned about the volume of dropped calls.

“Despite recent, wide scale network build-outs, coverage is still a common problem for users,” Baker told TechNewsWorld. “In my area, there are a number of places where I simply can not pick up a cellular signal.”

A prudent step that carriers have been taking to reduce churn is locking customers into longer term contracts. “By locking customers into longer term deals, carriers lessen the impact of churn,” In-Stat/MDR’s Wheelock said. Three-month contracts are an item of the past, few carriers offer six month deals, and a growing number are pushing the average length out from one year to two.

Service providers are also focusing on specific customer segments. Virgin Mobile has appealed to the youth market by making it easy for consumers who have not yet established a credit history to get cellular service. Nextel has concentrated on business users and includes a walkie-talkie-like function so employees can quickly contact coworkers.

Monitoring New Metrics

Billing vendors are helping service providers become more proactive in responding to churn. “New billing systems are coming out that identify key metrics — such as when a customer’s contract is about to expire — [that are] associated with churn, so carriers can take steps to ensure that their customers don’t switch to a competitor’s service,” noted Dittberner Associates’ Baker.

It remains to be seen whether the steps carriers are taking to improve churn rates actually achieve their desired effect. Analysts believe they will help somewhat.

“When local number portability standards were put into effect, there was a bump in churn rates,” said Yankee Group’s Hughes. “Now that that milestone has passed and carriers are putting even more of an emphasis on keeping customers, I expect churn rates to level off — and perhaps even drop a bit — in 2005.”

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