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3 methods of fighting churn among US operators.Find out which one is the most effective.
This week we are looking at how AT&T, Sprint Nextel and Verizon are fighting consumer churn. Annualized youth churn rates across the 65 markets covered in the mobileYouth report average just over 30%. That means one in 3 youth accounts are switching or deactivating every year – an attrition cost that totals billions of lost dollars for service providers. See how the top 3 US operators are dealing with this issue and find out which method is the most effective.
Presentation
Key Youth Market Data
source mobileYouth Report
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#1 How has AT&T lowered its churn rate
AT&T reported a total churn of 1.3% for the second quarter of 2010, lower than 1.5% for the second quarter of 2009. AT&T’s churn has decreased from 1.8-1.9 percent in 2006 down to 1.3 percent in 2010. While many might look at this as a positive for the operator, the real reason behind the decrease in churn was the launch of Apple’s iPhone 4 in the second quarter of 2010. It’s not AT&T customers that have not switched networks, rather it’s customers of the iPhone who stay loyal to the Apple brand. AT&T has been able to piggyback on its exclusive deal with Apple and lower its churn through the years.
#2 How has Sprint Nextel lowered its churn rate
While AT&T rides the iPhone wave, Sprint has differentiated itself as the first and only 4G network in securing a postpaid churn of 1.85% for the second quarter of 2010. In the first quarter of 2008, Sprint had posted a high post-paid churn rate of 2.45% and a net post-paid subscriber loss of 1.09 million. Things have turned around for Sprint, as it not only posted its lowers postpaid churn but also a net subscriber gain of 111,000 customers in 1Q 2010. While its differentiation as the first and only 4G network has made it an identifiable brand among customers, there is a bigger story behind Sprint’s revival.
In the beginning of 2008, Sprint’s customer service was rated terribly. Since then for 10 consecutive quarters, Sprint’s customer service ratings have improved. The American Customer Satisfaction Index (ACSI) ranked Sprint as the company that has improved the most over the past two years. Sprint improved its ACSI score from 56 in 2008 to 70 in 2010, while AT&T’s ACSI score dropped from 71 in 2008 to 69 in 2010. On the other hand, Apple’s ACSI score for year end 2009 was 84 well above average of 76 for the handset industry and 75 for the Personal Computer industry.
#3 How has Verizon maintained its low churn rate through the years
The final data point we would like to present to drive the case for customer service is the that of Verizon Wireless which has consistently had an ACSI score above industry average since 2004. It has also had the lowest churn among its competitors in the same time period. All the while technology advances gave us smarphones and app stores, Verizon has been able to maintain its position as the operator with the lowest churn in the US based on customer service and a reliable network.
Why handset dependency is ineffective in the fight against churn
According to latest research by WDS Global, 49% of consumers cite price as the most important factor when buying a handset. What matters most to consumers is what their phone can do for them. 34% cited data features, applications and functionality as most important when purchasing a handset. Only 10% chose a phone based on design and 7% based on the phone brand. So unless operators can provide affordable handsets with all the right features, applications and functionality at all times, customers will look for alternatives.
Besides smartphones are new to most consumers and their features can be problematic. According to the WDS Global research, 24% had problems setting up email, and 17% experienced problems setting up the internet. Frustration with such features lead to service abandonment. 8% of consumers give up on a service without trying to find a resolution. 29% do not think any of the support services available to them are effective. Once again we come back to the case for good customer service.
Youth loyalty for operator brands does not exist
Mobile ownership penetration rates, as measured by activations, among the 20-29 year olds in most countries is above 100%. Having a mobile account is a necessity among youth around the world. This has transformed mobile accounts into commodities among the world’s youth. Mobile operators do not and cannot have fans of their brand the way Apple or Nike do and thereby they can not have loyal customers. Youth are always on the look out for a better service. The search for an alternative starts with a bad experience with their current service provider. The search intensifies as they get recommendations from their friends on other service providers. Proactive customer service that reaches out to customers, provides them with numerous ways to address their grievances and then solves their issue is the beginning of a strategy that goes to fighting churning. Dependence on mobile handsets or a shiny new technology is a short-term strategy at best.
Unfortunately, Verizon seems poised to get lured into the handset exclusivity gimmick as AT&T has closed the gap between them in overall churn. Verizon’s churn slightly increased from 1.1-1.2 percent in 2006 to 1.3-1.4 percent in 2010. The slight increase in Verizon’s churn is mostly due to the recent trend of increase in Android phone adoption by consumers. Additionally with the release of iPhone 4, the price for an iPhone 3G has come down to a very affordable $99. The slight increase in churn due to a more affordable iPhone could be temporary as youth subscribers who are trying out the AT&T service for the first time might switch back due to a bad experience with its customer service.
Sources:
- AT&T’s net adds soar with 3.2M iPhone activations
- What is Sprint’s trump card?
- Sprint loses 1.09 million subscribers
- Verizon, Sprint and AT&T ACSI scores
- WDSGlobal research finds mobile phone brand loyalty is weak
- What is Verizon doing right to retain customer loyalty?
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