Losing customers is something that makes carriers’ toes curl and stomachs churn; it’s what you call “bad for business.” Traditionally the industry’s top-tier carriers manage to keep their churn around 2% or less per month thanks to their substantial postpaid customer bases. Smaller carriers and mobile virtual network operators that tend to rely on prepaid customers struggle with churn.
For example, Leap Wireless International Inc. reported customer churn of 3.8% during the second quarter; MetroPCS Communications Inc. reported 4.5% churn; and Virgin Mobile USA Inc. hit a whopping 5.6% churn during the quarter. While the companies took the time to note improvements in their churn results, those numbers still translate into the carriers losing at least half of their customer bases during a year.
Gaming the system
Greg Lund, spokesman for Leap, said churn has been higher for Leap lately in its newly launched markets.
“[During] the first six to nine months churn can be higher,” Lund said. “But it moves and once a market gets four to six to nine months of what we call tenure, the churn goes down.”
Lund also said churn occurs because of some of the many promotional offers Leap provides its customers. When someone signs up for Leap service, new and returning customers get a free month of service. This deal has caused many customers to de-activate, and then reactivate to get a month of free service, which affects that churn percentage.
Jayne Wallace, spokeswoman for Virgin Mobile USA, said Virgin’s high churn was due to seasonal impact. “Second quarter usually sees a drop-off from people who received phones as holiday gifts,” Wallace said.
It makes sense that people get rid of product they no longer want or use, but it’s even easier for customers who are not under contracts or do not have to pay early termination fees.
MetroPCS declined to comment on issues regarding churn.
Helping hand
Because Leap believes contracts are obsolete and credit checks typically are not required, prepaid plans and carriers that focus on no-contract offerings tend to attract lower-income people, Lund said. Many times customers will cut off service during a difficult month because they simply can’t pay the phone bill. To avoid churn in this area, Lund said Leap has developed a few programs to give existing customers some breathing room.
Cricket by the Week is a feature that costs $15 per week and provides service for seven days at a time.
Bridge Pay is another program that helps in a pinch. If a customer finds he won’t be getting a check that month or if something else comes up, he can simply pay a $20 fee to extend the payment date. Of that payment, $17 goes toward the balance and the customer has seven days to come up with the rest. If not, Lund said customers can switch to the Cricket by the Week program or de-activate service.
“We welcome people back,” said Leap’s Lund. “If the account was suspended, it can be reactivated with the same number [and a] $15 reactivation fee.”
Financial investment
Wallace said Virgin Mobile USA’s higher-value customers tend to churn less, so it continues to focus on plans, phones and services for those customers.
“A customer who spends $9.99 on a phone is more likely to churn than one who spends $69.99, and someone who signs up for the Totally Unlimited [$80] plan is less likely to churn than someone who uses by the minute at 10 cents,” Wallace said.
There’s no easy way to tell how significantly these avoid-churn tactics work, but carriers and MVNOs can only hope. Third-quarter results are just around the corner. Once again, the numbers will tell.
