Wireless carriers `churn' in place

35% of cell phone users change providers yearly as margins grow slimmer

`Victim of its own success'

August 19, 2002|By Sanford Nowlin | Sanford Nowlin,SAN ANTONIO EXPRESS-NEWS

On a quest for better price plans, network coverage and service quality, about 35 percent of U.S. wireless customers change carriers each year, according to the market research firm Yankee Group.

Though such switching - "churning," as it is known in the industry - has long been a fact of life for cellular providers, it has become a significant problem as waning customer growth and competitive pricing force the industry to operate on thinner profit margins.

Wireless carriers have pumped billions into expanding their networks to handle expanding traffic, but dropped calls still are more common than on land lines, and carriers still have gaps in their network coverage.

Consumer groups and regulators say they field frequent complaints of billing errors and customer-service gaffes.

All of that fuels consumer restlessness and prompts customers to look for better deals, analysts said.

"The increase in consumer expectations is outstripping what carriers can do to improve their service," said Roger Entner, an analyst with Yankee Group in Boston. "It's an industry that's become a victim of its own success."

Industry officials estimate that companies spend an average of $300 to gain each new customer, a tab that includes advertising, subsidizing phones and paying salespeople. And as prices for wireless services plummet, it is more difficult for companies to recover their initial investment.

"If you're only making a $5 to $6 a-month profit from a subscriber you spent $300 to $400 to get, then you've got to hang on to that subscriber for a while before you make back your initial investment," said Charles Mahla, an economist who tracks the wireless industry for research group Econ One in Sacramento, Calif.

The problem is likely will get worse in November, when the Federal Communications Commission is expected to allow consumers to keep their phone numbers when they change cellular providers.

Cellular companies are scrambling to address the high turnover rate.

Most are steering customers into contracts that require them to stick with their service for two years rather than the yearlong deals that were previously the industry norm.

Companies offer benefits such as free phone upgrades or better prices to persuade customers to sign longer contracts, but most also impose stiff penalties - usually $150 or more - for breaking them.

"We're not seeing the huge customer growth we had a year to 18 months ago, so everyone is looking for ways to improve the bottom line," said Clay Owen, a spokesman for Cingular Wireless in Atlanta. "One of the ways to do that is to cut down on churn."

Cingular, AT&T Wireless and others have begun programs that link employee bonuses to lower churn rates.

The carriers also have initiated tracking programs that attempt to match customers with calling plans that best match their calling patterns.

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