Operators turn to community tariffs and social networking in the fight to retain subscribers

Released: 6th March 2009
New research by Informa Telecoms & Media shows operators employing on-netdeals and mobile 2.0 as they battle to increase customer lifetime value.

Where community tariffs and family plans were once about being able to temptvirgin subscribers onto a network because their family or friends also usedit, on-net or community tariffs are now being heralded as loyalty measures.

The logic is simple: the more calls that are made on-net, the less operatorspay in termination rates; the more subscribers get cheaper tariffs forcontacting family, friends and colleagues, the less they are likely tochurn.

Mobile operators are uniquely positioned to offer the communicative andinteractive aspects of communities whilst taking advantage of the emotionalattachment and influence social networks can elicit.

The phenomenon that is social networking exploded into public consciousnessin the middle of the 2000s with web sites such as MySpace and Facebookgarnering millions of users within months of launch.

The business model for social networking on mobile in and of itself may notyet be entrenched, but operators are banking on the potential for positiveretention effect to protect existing revenues, decrease acquisition costs,and thus indirectly promote margin uplift.

So how much impact can churn have? Why is it so important in a slowingmarket?

Many markets are reaching saturation and first time subscribers are few andfar between. “Slow subscription growth will not hide low margins in thesame way that rapid increases in revenue due to high net additions can,”explains Angela Stainthorpe, Senior Research Analyst and author of InformaTelecoms & Media’s new Mobile Churn and Loyalty study, “thus the extensionof subscriber profitability is critical and operators must find ways toencourage greater incremental spend and a longer life on the network.”

The global economic outlook has also brought the retention of existingsubscribers to the fore. Lower investment capital, lower revenue forecastsand less money in the consumer’s pocket all make the future uncertain.Encouraging loyalty in the subscriber base in order to cut acquisition costsand maintain revenue levels in what is bound to become a yet morecompetitive market will be vital to survival.

If an operator begins a year with one million subscribers and experiencesblended churn rates of 3% per month with no concurrent new subscribergrowth, it will lose almost 285,000 customers during the year; with ARPU ofUS$20 a month, this equates to US$35.8 million in lost revenue per year.

Add to this the cost of acquiring new subscribers to replace those thatchurned, costs which reach beyond US$300 in some markets, and the case forholding on to existing subscribers becomes clear.