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Churn: are rural telcos immune?

Customer churn, or the tendency for customers to move from one competitive provider to another, has long been a significant problem for competitive telecommunications companies. Wireless and Internet service providers (ISPs) alike historically have devoted significant resources to tracking, managing and controlling churn, as it costs nearly four times more to acquire a new Internet subscriber than it does to retain one. In fact, churning cost the nation's largest dial-up ISPs at least $10 billion last year alone.

To rural telephone companies, however, churn is a relatively new problem. Rural telcos may lose a few calling-feature customers every month, and they likely lose a small percentage of longdistance, Internet or wireless customers at a relatively steady rate, but most rural telephone customers still have no competitive alternatives for local telephone service, giving many companies a false sense of security

And since most rural telephone companies continue to provide high quality service to their customers, the prospects of serious competitive encroachment into their core business appears to be much more remote than that experienced by their regional Bell operating company (RBOC) counterparts.

Why Worry?

Does this relative lack of existing competition in core businesses mean that rural telephone companies should not be concerned with churn? After all, churn is an issue in competitive markets. If a telephone company isn't faced with imminent competition for basic telephone service, does chum matter?

Absolutely. Most rural telephone companies are doing much more than providing traditional basic telephone service, yet as technology evolves and prices drop, even basic services increasingly are under competitive threat.

Not only do local telephone companies have to worry about competitive local exchange carriers (CLECs) competing for their core customer base, but now there is the increased threat of competition from the wireless and broadband markets as well. Churn is not limited to losing a wireline customer to another wireline service provider.

Increasing numbers of landline telephone customers are using wireless telephones as their primary phone service, particularly in urban markets. As wireless service continues to expand throughout the country offering more minutes for lower prices, free roaming and free long-distance, this trend inevitably will carry over to rural markets.

Churn Within the Banks

Broadband services also are shifting minutes and customers away from traditional telephone services. It often is easier, faster (and sometimes more fun) to instant message a friend and chat online than to make a telephone call. This trend holds particularly true for the younger demographic, which also is more inclined to use wireless as their primary voice communications.

Additionally, as a proliferation of affordable voice, entertainment and broadband alternatives become available, some services that a telephone company offers may cannibalize revenue from other services in its portfolio. For example, a customer may "churn" from dial-up Internet service and an additional phone line in favor of digital subscriber line (DSL) service, or he may choose satellite over the telco's cable television service.

This churning of customers from lower level services to new, more advanced technologies is a necessary evil, however, and telco's must take a two-pronged approach in their strategy: They must provide increasingly advanced services to meet the growing needs of their customer-base, and at the same time, they must encourage customers to "churn up," or spend more money every month. This strategy ultimately means more revenue over time with that customer.

These examples illustrate that even less customary means of churn--cases in which the customer hasn't disconnected service per se--are significant, as they put downward pressure on the revenue streams of traditional telephone companies.

Susceptible Services

Because most rural telephone companies provide many competitive services, including long-distance, Internet (dial-up and broadband), wireless, and cable and satellite television services, churn becomes an increasingly important company-wide issue for several reasons.

The most logical concern is that churn can dramatically impact company profits. Recent statistics have shown that every 1% reduction in churn can equal a 6% reduction in profits. Stack this up against the 2% to 3% a month average churn rate among Internet customers, and it quickly becomes clear that most ISPs are turning over 25% to 33% of their customer base every year. Just a simple reduction of even a half percent in churn a month can dramatically increase overall Internet profit margins.

As competition increases, incumbent local exchange carriers (ILECs) are seeing more predatory activity by their local competitors, specifically among some of the larger national cable television providers. Take the case of Fidelity Communications in Sullivan, Mo.

John Colbert, senior vice president of Fidelity Communications, wasn't completely surprised when Charter Communications, the company Fidelity had been competing with for local cable service in Sullivan, began sending out "sales agents" door to door offering customers $100 to switch from Fidelity and to sign a one-year contract with Charter. Charter customers were locking into rates ranging from $24.95 to $35.95 a month for cable service, according to Colbert.

Charter's tactics worked initially, and Fidelity lost nearly 20% of its cable customers, Colbert said. However, Charter underestimated Fidelity's stellar reputation and customer appeal, and overestimated its own ability to deliver service. After several Charter missteps, and Fidelity's own aggressive campaign, Fidelity's situation ended well, Colbert reported. As a result of this "attack," Fidelity was able to reconnect with its customers and personally manage its cable customer relationships, allowing the company to win back most of the customers it had lost, he said.

Customer Care

Why do customers churn? The easy answer would be better pricing. However, while this undoubtedly is the case in some instances, it is not the prevailing reason. There is no question that rural telephone companies must be price competitive with their services; this does not mean, however, that simply offering the lowest prices will guarantee customer satisfaction and loyalty.

Consumers today are technology savvy. They know what services they want. They spend time researching their options and they choose the services and companies that provide the quality, reliability, customer service and specific features that best meet their needs. Receiving a unique and relevant benefit that they cannot get elsewhere becomes much more important than simply saving a nickel or two.

Unfortunately, many telecommunications companies historically have treated new customers better than their existing customers -- offering new customers attractive incentives, better rates and packages, and more customized plans. Although necessary for new customer acquisition, this lack of focus on existing customers does not bode well for solidifying customer relationships.

A recent study from the Rockefeller Foundation about churn in general found that 14% of customers leave because complaints weren't handled, 9% leave due to competition, 9% leave due to relocation, and 68% leave for no specific reason. It speaks volumes that nearly 70% of customers don't churn because of a specific negative episode or because they found a better competitive offer, but rather, they switch providers because of simple neglect.

If customers feel no particular connection to their telephone company, if they are not getting something from their phone company that they can't get elsewhere, or if the customer (or the provider) becomes indifferent, the basis is set for customers to take their business elsewhere. It becomes easy for them to walk away.

Gaining the Upper Hand

Rural telephone companies can gain the strongest competitive advantage over competitors by understanding the importance of service and the ability to meet customers' growing expectations over the years. Many rural telephone companies have formed successful CLEC operations, edging into surrounding RBOC communities, built on these very notions.

In many of these cases, customers perceived the rural telephone company as a better-respected entity and a better corporate citizen than their own telephone company Thus, when the opportunity arose to buy service from the rural telco (as a CLEC in their town), it was not unheard of for 60% of customers or more to elect the rural phone company CLEC over their incumbent phone company.

Did these customers switch providers because of price alone? In most cases, the answer is no, as pricing between the CLEC and the incumbent telephone company generally is similar. The deciding factor is that customers perceive that they are getting more value from the rural CLEC than they had been getting from their provider.

As rural telephone companies increasingly face more direct and indirect competition, addressing customer churn will become an important issue that should be integrated into all aspects of the company's operations. While there is no way to eliminate churn completely there are tactics that companies can use to mitigate and control churn.

Turning the Tide

Telcos must take measures to ensure that customers are not only satisfied, but that each customer is deriving ongoing value from their relationship with the company Telcos must ensure that, regardless of which services a customer is buying, that customer is continuously using and enjoying those services, and the telephone company is routinely reminding them of why those services, and the company overall, can bring them more benefit than other competing services and companies.

Additionally customers must be educated on an ongoing basis about the unique benefits the telco offers them. Customers must be told about the reasoning behind the decisions the telco makes on their behalf, and about any changes in their service. Ignorance can breed negativity, while education can strengthen the relationship and create a more satisfied customer.

Finally telephone companies should strive to learn from their customers. Most phone companies have a wealth of customer information at their disposal. Telcos that respond to their customers' specific needs by creating custom, relevant solutions for various customer groups, differentiate themselves in a positive way and become indispensable to their customers.

The most important lesson in decreasing churn is to not lose sight of the customer. Telephone companies will never achieve zero churn, as there always will be a group of customers that are solely price driven and who will leave for even a nickel savings. However, simply by focusing on creating ongoing value for each customer, rural telcos will create lifelong relationships and satisfied customers, a situation that will benefit both the telephone company and its customers over the long run.

RELATED ARTICLE: Shifting mind-set: the first step on reducing churn

Here are countless tactics that your company can use to reduce churn, from traditional branding campaigns to complex data-mining and targeted marketing initiatives. However, it is the fundamental shift in a company's mind-set that will best facilitate the creative thinking necessary to implement successful customer relationship and churn reduction programs. Here are a few proven ideas:

Find good products for good customers, not good customers for existing products. Rather than choosing a service and trying to sell it to your customers, try looking at the characteristics of a specific customer group and finding services that are relevant and beneficial to that group. For example, you could provide the little-used "do-not disturb" calling feature free of charge to all new parents in your serving area. It's likely that your penetration rate for this feature is less than 1%, and this would be an inexpensive way to demonstrate that you understand the needs of this customer group. It also would encourage these customers to get some real value out of a vastly underused calling feature.

The bottom line is this: by simply responding to your individual customer's needs better than current or future competitors, you will generate enhanced customer loyalty and reduced churn.

Create a bond with your customers. It's the customers who don't feel a connection with your company who find it the easiest to leave-so don't make it easy for them. Create opportunities to connect with customers via free trainings or educational seminars, business expos or just-for-fun customer events--any venue that creates value for a customer. Send out birthday cards with a relevant discount or a special offer, or offer to send an employee to help a customer set up the calling features or an Internet account at their home.

Each time your company exceeds a customer's expectation, or gives them something they can't receive anywhere else, you make that customer less likely to go elsewhere.

Emphasize the customer relationship; don't concentrate on simply making maximum revenue on each transaction. What is the lifetime value of a customer-especially a customer who takes multiple services from your company? If you do the math, the amount of revenue one long-term customer can provide may surprise you. To successfully keep customers, it becomes crucial to focus on the big picture. Give away low-penetrated services or features that will benefit your customers, or identify all of the various types of encounters that customers may have with your company and try to build more value into each customer contact.

When you stop worrying about maximizing your profit from every transaction, and instead begin focusing on creating ongoing value for your customers at every juncture, you'll find the benefits to be mutual. Your customers will be happier, less likely to leave, and more likely to buy additional services; in turn, your revenue will increase and your churn rates will drop dramatically

Missy Poje

Michael Fox is a founding principal of CCG Consulting. He can be reached at []. Missy Poje is president of Poje Marketing Advertising. She can be reached at [].
COPYRIGHT 2002 National Telephone Cooperative Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:telecommunication service providers and customer relations
Author:Fox, Michael; Poje, Missy
Publication:Rural Telecommunications
Article Type:Statistical Data Included
Geographic Code:1USA
Date:Jul 1, 2002
Previous Article:E-mail marketing: handy tool or business hazard?
Next Article:Customer data can yield a marketing gold mine.

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