Avoiding wireless churn has long been about keeping customers happy with voice quality, reliable service and competitive pricing, but the rules of the game are changing. The arrival of the iPhone and its various smartphone rivals, such as Motorola's Droid, demonstrates that operators will now have to cultivate loyalty with attractive smartphone portfolios and strong mobile data networks to support those devices.
"In today's market, price doesn't drive a decision for a satisfied user [to change carriers], whereas 10 years ago, there was no user satisfied enough that price wasn't going to make a difference," said telecom consultant Tom Nolle, president of CIMI Corp. "Users are enamored enough about certain smartphone models -- the iPhone, in particular -- that they will change operators to get a specific phone, and that has never been true in the past."
AT&T has historically lagged far behind its biggest rival, Verizon, in churn rate, dating back to the days of Cingular. In 2004, Cingular's wireless churn rate was 2.6% for prepaid and postpaid customers. Verizon Wireless led the pack with a 1.4% mobile churn rate that quarter.
Despite the bad press AT&T has received over the way its 3G network has handled the unanticipated flood of data traffic from the iPhone, its fourth-quarter wireless churn rates dropped in 2009 to 1.44% -- nipping at the heels of Verizon, which reported a 1.42% total customer churn rate.
"The iPhone changed things," said John Carney, senior vice president of consumer marketing at Sprint, which reported a 2.11% churn rate last quarter, down from 2.16% year-over-year. "In general, most of the carriers had relative parity on device selection until the iPhone."
Network strength, data performance fuel wireless churn war
Although Verizon saw success by adding the Motorola Droid to its lineup last year, a spokesman for the wireless operator said it has held onto the lowest churn rate for 20 of the last 21 quarters by delivering on its promise of "the largest and most reliable network" -- spending $7 billion on it last year.
"We're always investing in our network, and we're always expanding and improving our network," said Verizon spokesman Thomas Pica. "We test our network, and it's the basis for our claim in our advertising."
Customers are still sensitive to dropped calls and poor voice quality, but poor data performance has been behind two-thirds of recent churn cases, Nolle's independent research has shown. It takes a lot to tick off a customer, he added, noting that 81% of cellular subscribers tend to stay with the provider they went with first. But a customer who churns once is seven to eight times more likely to do it again.
Once an angry customer starts noticing competitors' ads and vetting their offerings, Nolle said, that customer is at least twice as likely to churn.
"Most people change [providers] because something has happened to piss them off," he said. "It's one of the reasons why issues of customer support, call support and Verizon's 'Can you hear me now?' [ad campaign] has been so effective, because if you can keep a customer from getting angry at you, they probably will never bother to check other plans."
Loyalty program, first to 4G help Sprint fight wireless churn
Meanwhile, Sprint has attempted to improve customer satisfaction through its loyalty rewards program, Premier, which it began last year as a way to "get rid of the iron handcuff of contracts and move toward an equity-based model with customers," Carney said.
After six months of consistently paid bills, Premier customers become eligible to upgrade their phones once every year instead of every two years, as most other major providers do. Subscribers are also given "surprise perks," he said, such as free ringtones or discounts off accessories.
"The industry uses contracts and other tools to force customers to stay," Carney said. "[We are] working on ways to get our customers to want to stay with Sprint, instead of forcing them to stay…. This is about retaining and building loyalty instead of locking them in."
As the first wireless operator in the U.S. to deploy a 4G network -- though unlike competitors using Long-Term Evolution (LTE) technology, Sprint is using WiMax -- Sprint is also marketing itself as the fastest and most affordable data network, Carney said.
"We're going to be very aggressive in really pointing out our price value in 2010," he said. "We want to drive data adoption."
Though if Sprint and T-Mobile, which reported a 3.3% total customer churn rate last quarter, want to claw their way to the top of the churn heap, they're going to have to focus less on courting prepaid customers, who are much more likely to churn, Nolle said.
"If you're going to wrestle a place in the postpaid market against Verizon and AT&T, you've almost got to build that position with smartphones," he said. "If Sprint could get a lead in WiMax, they actually could do better there [as a churn-cutting strategy], in all likelihood, than they would by trying to fight back against Verizon, AT&T and T-Mobile."
Let us know what you think about the story; email: Jessica Scarpati, News Writer