With wireless local number portability right around the corner, wireless carriers are expected to become more aggressive in the next several months in offering retention incentives tied to contract extensions in an attempt to keep their current customers from fleeing to another operator. A number of operators have acknowledged the need to sign up customers to long-term contracts, with many reporting an increasing percentage of their customer base signing up for two-year contracts during their recent second-quarter results.
Analysts have also begun noting the trend. RBC Capital Markets released a benchmark survey of customer-retention efforts last week that looked at what incentives carriers typically offer to customers to keep them from churning and estimating the value of such incentives.
The report found carriers are offering a variety of incentives including service credit, additional anytime calling minutes and equipment credits, which RBC analyst Jonathan Atkin noted are relatively cost efficient when compared to the cost of adding a new subscriber.
“We don’t think current retention incentives are out of hand,” Atkin said in the report. “At the high end, we estimate the average value of current incentives at about $60-$100 per customer, which is far below carriers’ acquisition costs and readily recovered within a few months of contract renewal.”
Atkin’s findings are in line with carrier results that typically report between $300 and $450 in the cost per gross addition and average revenue per user of between $50 and $70 per month.
The report noted equipment credits generally ranged between $50 and $100 per customer and were similar to incentives that new customers were offered to sign up with an operator. Bonus minute offerings were valued at around $60 per customer for the renewal period, while service credits were valued at between $35 and $60 depending on the carrier.
The report found that AT&T Wireless Services Inc., Nextel Communications Inc. and Sprint PCS offered the highest customer retention incentives of the seven largest wireless carriers, though each offered their incentives in different ways.
AT&T Wireless and Sprint PCS typically offer customers a mix of incentives, with AT&T Wireless offering one-month service credits, bonus minutes and equipment credits if a customer signs up for a two-year contract extension, while Sprint PCS offers bonus minutes typically ranging from 60 to 200 minutes, and sometimes an accompanying equipment or service credit.
Nextel, on the other hand, usually limits its incentives to additional bonus minutes onto an existing plan, which RBC analyst Jonathan Atkin said is typically an additional 200 minutes.
RBC ranked T-Mobile USA Inc. as the next most aggressive, with the carrier usually offering a one-month service credit, which Atkin noted is typically provided during the sixth month of a renewal term.
While Verizon Wireless was found to be less aggressive than most of its competitors, RBC noted the carrier is more generous than other operators in providing equipment credits and cited Verizon Wireless’ New Every Two program that provides customers with a $100 equipment credit when they renew a two-year contract.
“Perhaps this means [Verizon Wireless] is confident enough in its network quality that it believes it can spend relatively less on retention incentives and still keep its customers,” Atkin explained. “That said, on equipment credits we found [Verizon Wireless] was more generous than the other carriers, but we discounted this somewhat on our comparison as many customers care more about reducing their ongoing monthly spend than about purchasing new equipment.”
Alltel Corp. and Cingular Wireless L.L.C. rounded out the group, with Alltel typically offering between 50 and 100 bonus minutes and the occasional $50 service credit, while Cingular was found to offer few and sometimes no retention incentives.
Atkin added that while carriers are expected to begin ratcheting up the value of their incentives in the coming months, recently reported second-quarter results showed most carriers were able to dramatically reduce their customer churn rates compared with last year with their current incentives.
