4G Operators Must Improve Communication to Minimize Churn

(Jan 10 2012) Mobile Broadband , Smartphones

1. By Declan Lonergan, Research VP, Yankee Group

   Mobile operators have learned to live with subscriber churn. Despite major efforts over several years to reduce churn rates, recent market evidence points to an increasing rather than a decreasing churn trend. It costs operators a lot less to retain an existing customer than it does to win a new one. Consequently, MNOs must continue to innovate in churn-prevention measures to ensure avoidable churn is maintained at as low a rate as possible. 

   The following natural market phenomena create churn events and will always pose challenges for MNOs:

   • Prepaid inactivity. Unlike services that involve a contract between the provider and the customer, prepaid introduce problems when MNOs report customer numbers and churn rates. The key is the period of inactivity that must elapse before the MNO stops counting the prepaid line as an active customer, and instead adds it to the churn statistics. Because prepaid customers can switch between providers relatively easily, prepaid churn rates are substantially higher than those for postpaid. For example, in Q2 2011 Orange France reported prepaid monthly churn of 4.3 percent compared to 1.3 percent among postpaid customers. These values are typical of most MNOs in the region.
   • Migration to smartphones. Every time one operator wins exclusive access to a particular device—most notably the iPhone—its competitors are challenged to prevent their customers from switching network. As migration to smartphones gathers pace, the churn-prevention challenge will become more acute. 
   • Competitor activity. Despite all the excitement surrounding new devices, advanced features and next-generation network technologies, good old-fashioned competition between operators and MVNOs is what keeps churn rates stubbornly high. 
   • Economic circumstances. We can’t discuss churn without referring to prevailing economic conditions. During 2009 and 2010 the recession in Europe certainly didn’t help the subscriber churn situation. Subscriber churn in Western Europe increased noticeably during 2009 as the economic recession began to take effect. Between Q4 2008 and Q4 2009, the average monthly churn for 21 Western European operators increased by 0.14 percentage points. 

   Some Churn Is Avoidable

   The phenomena described above are largely unavoidable, but others are largely within operator control. In Yankee Group’s 2011 European Consumer Survey, we ask several questions that provide insights into what customers value most in their relationship with MNOs. We find that network service quality is the overall No. 1 factor. This is closely followed by price. Billing, discounts, customer care and devices also feature strongly. 

   The good news for MNOs is that they have a large degree of control over each of these elements. These elements deserve the most attention—and budget allocation—as MNOs plan their customer loyalty initiatives for 2012 and beyond. 

   The key factors that drive churn also have one other unifying characteristic: Each can be positively influenced if operators communicate clearly, consistently and proactively with their customers. 

   Subscriber churn cannot be eradicated completely. Like the common cold, those affected have to learn to live with it and should focus on prevention rather than trying to find a cure. MNOs’ approach to dealing with churn must be holistic and multifaceted. Their strategies should encompass pricing, billing, devices, customer care and every other metric used by end-users to evaluate the overall customer experience. 

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