Wireless-Phone Companies Fight Rising Churn Rates

Promotions Abound as Customers Jump on Best Offers Around

By Published on .

SAN FRANCISCO (AdAge.com) -- With churn rates rising among subscribers, wireless-phone companies are pouring on the promotions and marketing spending in hopes of keeping cost-conscious consumers in the fold.

There are no hard numbers on how consumers react in a recession when it comes to cellphone service. Brand switching rose during the last major downturn, in 2001, but that period isn't considered comparable since fewer people owned mobile phones and they were considered less of a necessity. But there is anecdotal evidence, at least, that consumers might be willing to jump on the best offer this time around, as churn rates in 2008 rose for both Verizon and T-Mobile. Sprint alone shed 1.3 million customers in the fourth quarter. Switching rates for AT&T, with its white-hot iPhone, were largely unchanged.

Churn chart

Customer attrition among top four U.S. wireless carriers
"Most industries will not experience growth during this period, so achieving growth must be at the competition's expense," said Bill Morgan, Sprint's senior VP-marketing. "To lure switchers, companies would be wise to maintain as healthy a marketing budget as prudently possible."

But the most spending doesn't always mean the least churn. AT&T outspent Verizon by some $200 million last year yet posted higher churn rates. In 2008, wireless leader Verizon, which still maintains the lowest churn in the industry, spent $2.2 billion in measured media, excluding outdoor and national radio spots, vs. AT&T's $1.9 billion.

Nonetheless, Verizon is covering it flanks. The carrier, known to compete on quality rather than price, has taken steps within the last week suggesting that it was not above bringing value into the equation. It's now letting customers on its higher-priced plans choose up to ten people they can talk to without the clock running against their minutes. The feature is a variation of the MyCircle service first launched by Alltel, which Verizon acquired late last year.

Plans for everyone
In the same week, Verizon announced two new prepaid-calling plans, one for heavy users and one for infrequent users, and awarded unlimited weekend minutes to customers of a prepaid plan designed for moderate users. Meanwhile, Verizon Communications, the company's fixed-line unit, has a $5 monthly plan ready to launch that lets customers receive calls but only dial 911 and Verizon customer service.

"Clearly, consumers will be cost-conscious," said Chetan Sharma, a telecommunications consultant. "Giving them more flexibility and choices with plans will help."

A Verizon spokeswoman said promotional plans for the friends and family service would be "significant" to include national TV, store promotion, newspaper ads, but would not say when the campaign, from creative agency McCann Erickson, New York, would break.

T-Mobile, meanwhile, is also eyeing ways to keep customers on the hook. According to published reports, the No. 4 U.S. carrier last week launched an unlimited $50 calling plan on a test basis in the San Francisco area before a national rollout expected later this year. This offering is aimed at current subscribers who are vulnerable to bolting to the $50 unlimited prepaid plan offered by Boost, Sprint's prepaid unit.

Sprint's recession-fighter is clearly Boost, which last week unwrapped the "Unwronged" campaign to promote its straight-up $50 prepaid plan while taking shot at other prepaid plans that add on charges such as activation and roaming fees. The campaign, which portrays egregious situations such as pigs eating ham, will run on mainstream channels including ABC, NBC and Fox as Boost seeks to reach a broader audience. The move marks a break from its strategy of tapping more hip or irreverent outlets such as MTV and Comedy Central, which will also run the new spots. The creative agency is 180 Los Angeles.*

Customer care
But an even better tool to reduce brand switching than marketing is service, said analysts. "Churn is a lot more about customer care and experience than about marketing," said Charles Golvin, a Forrester analyst.

Thus, analysts believe Verizon is doing all the right things to get its customers to stay put. Its extension of the Alltel MyCircle -- rebranded as the Friends and Family feature -- should gain the carrier some loyalty points. "It's a nice differentiator from AT&T," said Bill Ho, an analyst with Current Analysis.

"They're not giving away the store but they're rewarding the higher- priced subscribers. You want to protect that higher dollar customer base you have. It engenders loyalty. It lets customers think: 'I got something for nothing.'"

A look at the last downturn

What can marketers learn from the last recession when it comes to churn rates? Not a lot.

During the last downturn, which the National Bureau of Economic Research says began in March 2001 and ended in November 2001, the wireless-subscriber base was still growing. The year ended with about 20% more U.S. wireless subscribers than the year before, according to the Telecommunications Industry Association. Historically, phone subscriptions (landline and wireless) have been among the last consumer items to be cut when the economy is down, said Arthur Gruen of Wilkofsky Gruen Associates.

AT&T's and Verizon's churn rates were high in 2001 compared with subsequent years, but in those days, mobile phones were nowhere as entrenched as they are today. Moreover, operators have since become adept at managing churn through add-on services and investments in their networks, and consumers now have prepay services as a fallback.

~ ~ ~
CORRECTION: An earlier version of this story incorrectly identified the Amerstadam office of 180 as the agency handling Boost Mobile.
In this article:
Most Popular