Smartphones Drive Changes in Mobile Market

By Judy Mottl

August 28, 2008

As carriers look to reduce turnover and keep customers happy, smartphones such as the Wi-Fi-enabled iPhone, help drive demand for data.

In the competitive race to build subscriber base, leading wireless carriers are all on the same quest to lower customer turnover but are using different strategies to achieve their goal.

As Gartner analyst Phillip Redman points out, subscribers leave when network coverage isn't adequate or when pricing is more compelling with another carrier or if they want a device not offered by their current carrier.

"Churn has been endemically high in this industry, but it's how the carriers work as they almost push them to leaving than trying to keep them," Redman told InternetNews.com "They've all had a hard time trying to understand their customers or doing a good job of communication with them," he added.

Market leader AT&T is busy bundling packages for specific customer segments aiming to provide what it believes customers truly want when using a mobile device.

Verizon Wireless, for its part, said its intent on keeping all its customers satisfied on all fronts. "We seek to provide the kind of service, whether that's network coverage, products and services or customer service, that not only satisfies customers, but also makes them likely to recommend us to a family member, friend or colleague," Thomas Pica, Verizon Wireless' executive director of corporate communications, told InternetNews.com.

Third-place player Sprint is focused on what CEO Dan Hesse calls the "valuable" customer--those who not only pay their bills but are looking for additional services beyond voice service.

Pica said the company has invested more than $45 billion, an average $5.5 billion annually, on its network since the company was formed in 2000. In 2007 it spent $6.5 billion to expand the network, Pica said.

Such network investment, which all carriers are doing these days, is key to reducing what one analyst believes is still a very high turnover rate overall for the wireless industry.

Success stories

Market leader AT&T and Verizon Wireless, the second-largest carrier and owned by Verizon Communications and Vodafone Group, are succeeding at reducing churn.

AT&T added 1.3 million new subscribers in the second quarter and has a 1.1 percent monthly churn rate. Verizon Wireless added 1.5 million subscribers during the quarter and reported a monthly churn of 1.12 percent.

But other carriers are not faring as well. While third-place Sprint reported it had decreased its churn rate from nearly 2.5 percent to just under 2 percent, it also lost 901,000 subscribers. In the first quarter it reported losing 1.1 million subscribers.

T-Mobile, the fourth-largest wireless carrier, reported it added 668,000 new subscribers in the second quarter, but that's a drop from 981,000 in the first quarter and from 857,000 in the second quarter last year. Its churn rate of 1.9 percent is up from 1.7 percent in the first quarter of 2008 and above last year's second quarter rate of 1.89 percent.

Keeping churn down

Keeping churn down is vital, according to industry insiders, given the high costs it takes to lure new customers.

"Back in the 1990s the carriers were just intent on selling services and signing on customers as fast as they could and not concerned about who they lost," Jeff Kagan, telecom analyst, told InternetNews.com. But that strategy began changing three to five years ago when churn rates started hitting the three percent to five percent mark.

"It's become a significant issue as they realized they were losing as many customers as they were signing on and realized they'd have to stem that loss flow," Kagan explained.

In some ways keeping customers happy today as compared with five years ago is a very different task.

Early on, for example, network service quality and network coverage were determining factors in subscriber decision. In fact, many areas had limited carrier options, and everyone had the same complaints about dropped calls.

Today, though, most network providers are on par in terms of network quality and stability, and users' wants are more tied to new options such as data services, access to the latest devices and more economical rates.

That's exactly what ignited a small rate war in late February, when several leading players tried to outdo each other with all-you-can use service plans hovering under the $100 mark.

Sprint advanced the battle one step further in March when it introduced its Simply Everything buffet plan offering unlimited voice, text and e-mail for about $80. Some analysts viewed the plan as preemptive strike against the impending second version of the iPhone for which AT&T had sole distribution rights.

Yet during Sprint's earnings call this week Hesse said competitive phones such as the iPhone were proving to be a boon for all carriers.

"We've seen a substantial increase in smartphone use, and the success of our Instinct [Sprint's latest smartphone] proves it's a good value when placed against what the iPhone offers," he told investors.

Hesse also attributed the increasing mobile device data services demand to innovations such as the iPhone.

"These handsets have opened up the possibility of what data can do for user in the wireless mobile environment," John Garcia, president of Sprint's CDMA business unit, said during the earnings call.

"We have great voice, but data is where the market is going and that's where we will perform well," he added.

At Sprint, Hesse's goal since he came on board early this year has been to improve customer service, which he believes ties directly to reducing churn. The CEO said 80 percent of support calls are now solved in less than 30 seconds. He mentioned the company's lowered churn rate several times to investors as evidence the carrier was making progress on its turnaround.

"It's a tremendous accomplishment," said Hesse, acknowledging that "we still have a lot of room for improving the churn."

AT&T executives noted during its earnings call that its second quarter 16.1 percent growth in wireline Internet data revenues was driven by strong increases in consumer video and broadband revenues, and in business services such as virtual private networks, managed Internet services and hosting. Verizon Wireless, likewise, attributed its second quarter strong growth to demand for data services as the primary stimulator as well.

Article adapted from InternetNews.com.



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