WAN Services /

What the cost of customer churn means to you

By Lisa Pierce
Network World, 11/12/01

Does it seem to you that service providers pay more attention to winning new customers than to keeping their existing customers happy?

You're not imagining things. Statistics bear this out:

The cost of acquiring a new wireless customer averages between $250 and $300 per subscriber in the United States.
Depending on the carrier, churn rates hover between 2.2% and 2.8% per month (26.4% to 33.6% per year).
At the end of last year, the Cellular Telecommunications Industry Association estimated there were about 109 million active wireless subscribers in the United States with a monthly average revenue per user of $45.27.

Based on these statistics, there were between 28 million and 36.7 million churned subscribers in fiscal year 2000. At the low-end cost of $250 per acquisition, the cost of acquisition for this group ranged between $7.2 billion and $9.2 billion.

The U.S. wireless industry made about $52 billion last year, so the cost of acquisition amounted to at least 17.7% of gross revenue. And at current revenue levels, it takes about five-and-a-half months of service simply to recoup the acquisition expense.

The situation is similar throughout most of Europe, where cost of acquisition, churn rates and declining monthly average revenue per user figures all put a squeeze on providers.

The cost of acquiring a new ISP subscriber averages $400, while the cost of retaining one is about $100. ISP churn rates average 4% to 8% per month (48 to 96% per year). EarthLink's current churn rate is on the low end of that scale at almost 47% per year.

Churning costs the nation's largest dial-up ISPs at least $10 billion last year. Providers that use consumer-class broadband access such as DSL and cable modems generally experience fewer churns than consumer dial-up ISPs. However, choice of ISP over broadband access is fairly constrained right now. The amount of churn over broadband is artificially depressed and will rise as broadband access providers open the door to ISP choice.

Both ISPs and wireless providers are betting that new 2.5G and 3G data services will pump up revenue by increasing the monthly revenue per user figures and decreasing churn.

I think these services will stimulate provider revenue and profitability for up to the first two-and-a-half years after they become available to the mass market. However, absent the continued introduction of new popular applications, as 2.5G services and applications become widely used and brand competition increases, wireless data revenue trends will begin to follow those of wireless voice.

What does all this chaos mean to users? Companies have more power than they realize. Providers may act as though they have all the money in the world, but the statistics indicate they don't.

Still, providers can be terribly intransigent when negotiating price, service quality and customer support. In response, customers should sign contracts of no longer than one year and should never agree to an exclusive use or near-exclusive use clause.

Continue to use these tactics until providers demonstrate that they appreciate the value that their existing customers - you - bring to their businesses.