ANALYTICAL CHURN PREDICTION IN

THE TELECOMMUNICATIONS INDUSTRY

Andreas Zaras, Data Scientist

CHURN PREDICTION SECTION CONTENTS

 Introduction to Churn Prediction.

 Setting Up the Model for Churn Prediction.

 Churn prediction Case Study from the Mobile Telcos Industry.

 Model Development Using Predictive Analytics (Decision Trees).

 Demo of Churn Prediction Using SAS Viya.

 Wrap - Up and Conclusions

CHURN PREDICTION REFERENCES

 Peter Christie et al, 2011. Applied Analytics Using SAS Enterprise Miner Course Notes. Cary: SAS Institute Inc.

 Prof S. Chandrasekhar. Predicting the Churn in the Telecom Industry. https://vdocuments.mx/predicting-the-churn-in-

telecom-industry.html

 SAS Institute Inc. Churn prediction in the telecommunications industry. A SAS White Paper. Cary, SAS Institute Inc.
1999.

 Sacha Schubert. Customer Attrition Management in the Financial Services Industry. A SAS White Paper. Cary, SAS
Institute Inc. 2002.

 Gordon S. Linoff and Michael J. A. Berry. Data Mining Techniques. Wiley, latest edition.

 Bart Baesens. Analytics in a Big Data World. Wiley, latest edition.

 INTRODUCTION TO
CHURN PREDICITON

Andreas Zaras, Data Scientist

CHURN PREDICTION INTRODUCTION

The Mobile Operator’s Business Environment is Characterized by:

Also…
CHURN PREDICTION A SIMPLE CHURN DEFINITION

Customer churn or customer attrition is a term used in the

telecommunication and many other industries and refers to
customers’ decision to move their subscription from
one service provider to another.

Main reasons for churning:

Search for better services

Unsatisfactory service of current operator
More attractive offers from other operators
Reduced prices from other operators
CHURN PREDICTION IMPORTANT STATISTICS!

It costs 6 to 10 times more to acquire a new customer

than to retain an existing one.

Also one bad customer can in fact spoil the chances

of acquiring 8 – 10 good customers.

Mobile operators are loosing 20% to 40% of their customers

each year (Europe -- > 20%, US -- > 37%, Asia -- > 48%)
CHURN PREDICTION THE NEW ROLE OF MOBILE OPERATORS!

In today’s business environment mobile operators, in order to survive, must

be transformed from fishermen to farmers.

Customer Acquisition Customer Retention

CHURN PREDICTION PRIORITY OF TELCO’S EXECUTIVES

Highest priority of any senior telco executive:

Manage the customer base to reduce churn!

Another important statistic:

Companies that implement a comprehensive, analytics-based
approach to base management can reduce their churn
by as much as 15%.
CHURN PREDICTION SIMPLE CALCULATION OF FINANCIAL IMPACT
Why is churn prediction so important?

Let us say the following:

✓ Number of customers of the mobile operator = 1,000,000.

✓ Average customer subscription = 20 euro per month.
✓ Yearly churn rate = 4%.

Value lost each year because of churners:

(20 euro / month * 12 months) * 1,000,000 customers * 4% churn rate = 9,600,000 euro.

If we detect 50% of the churners in advance, and we manage to keep 25% of them, the value
of the model is:

9,600,000 euro * 50% * 25% = 1,200,000 euro

SETTING UP THE MODEL
FOR CHURN PREDICTION

Andreas Zaras, Data Scientist

CHURN PREDICTION THE «TIME MODEL» BEHIND CHURN PREDICTION

3 Months 3 Months 3 Months

Jan - Mar Apr - Jun Jul - Sep

Time
Learning Window Learning Window Prediction Window
- -
Customer Characteristics Customer Churn/ Non - Churn
Behavior

Now: End of May

CHURN PREDICTION CUSTOMER CHARACTERISTICS OR CUSTOMER PROFILING

Categories of
Customer Characteristics
Customer Attributes

 Demographic attributes
Churn
ID
(1 / 0)
I1 I2 I3 I4 I5 ….. In

 RFM attributes 100 35 1169 1 6 5 ,,, 330 1

 Ratio variables 250 45 5951 2 48 3 … 125 0

 Delta variables 800 60 2096 2 12 4 … 284 1

 Delta on ratio variables ….. ….. ….. ….. ….. ….. … ….. …..

 Social Network Analysis Variables 1000 29 4870 1 24 1 .. 103 0

CHURN PREDICTION DEMOGRAPHIC DATA & BEHAVIORAL CHARACTERISTICS

Demographic Data: Standard profiling information:

 Age  Handset
 Gender  Brand of handset
 Marital status  Age of handset
 Number of children  Functionality
 Income  Adequacy between handset functionality and subscription.
 Language  Adequacy between current consumption habits & current
 Zip code subscription
CHURN PREDICTION THE RFM APPROACH FOR CUSTOMER PROFILING

To determine the customer characteristics or the so called customer

profiling we usually follow the RFM approach.

RFM Metrics

Recency Frequency Monetary

CHURN PREDICTION THE RFM APPROACH FOR CUSTOMER PROFILING
R (“R” means “Recency”):

 How recent is the last contact with the “hot-line” (customer support)?
 How recent is the last purchase of the individual?
CHURN PREDICTION THE RFM APPROACH FOR CUSTOMER PROFILING
F (“F” means “Frequency”):

 How many purchases on the last time period?

 How many transactions on the last time period?
 How many calls to the “hot-line” (customer support)?
 How many MOU (minute-of-usage) on the last time period?
 How many MOU (minute-of-usage) on peak, off-peak, on weekend, on evenings on the last time period?
 How many SMS on the last time period?
 How many data on the last time period?
 How many calls towards “outside the network”? By “outside”, we mean, either:
a call from our network to another specific competitor or to to national number or to international number
 How many international calls ?
 How many MOU on the last time period towards “outside the network” & towards “inside the network”?
CHURN PREDICTION THE RFM APPROACH FOR CUSTOMER PROFILING
M (“M” means “Monetary”):
 For how much money was the last purchase on the last time period?
 For how much time is the current subscription active?
 For how much time is the current subscription still binding?
 How many subscriptions are currently active or binding? What’s the ratio between active and binding?
 Which payment method (direct debit, bank transfer, …)?
 Is the roaming option active and/or used?
 Mean Recurring re-charge per month.
 How much discount on the current subscription(s)? (Has the individual some promo code?)
 Which promotion type? (voice, SMS, data, roaming,etc.)
 Did the customer buy some specific options on his products?
CHURN PREDICTION RATIO VARIABLES FOR CUSTOMER PROFILING

Ratio variables:
These variables encode the ratio between two related RFM variables:

 What’s the ratio of calls “outside the network” compared to calls “inside the network”?
 What’s the ratio of MOU “outside the network” compared to MOU“ inside the network”?
 What’s the ratio of “international” MOU compared to MOU “inside the network”?
CHURN PREDICTION DELTA VARIABLES FOR CUSTOMER PROFILING

Delta variables:
These variables encode the difference in RFM variables between two time periods:

 How much increase (or decrease) in terms of MOU (minute-of-usage) between the last time period
and the previous one?
 How much increase (or decrease) in terms of expenses (in euros) between the last time period and
the previous one?
CHURN PREDICTION DELTA ON RATIO VARIABLES FOR CUSTOMER PROFILING

Delta on Ratio Variables:

These variables encode the difference in Ratio variables between two time periods:

 How much increase (or decrease) in terms of ratio of MOU “outside the network” compared to
MOU“inside the network” between the last time period and the previous one?
CHURN PREDICTION FEATURE ENGINEERING FROM SNA (COMMUNITY MINING)

C = Churners
NC = Non Churners

min = call min + #SMS x 5/60

Local Inputs

Input 1 Input 2 ….. Input n

Case ?

Inputs from Community Mining

%C %NC Existence Existence Avg Age Avg Income Duration of Duration of Dur of Calls to C
(Relational) (Relational) of C of NC of Neighbors of Neighbors Calls to C Calls to NC Dur of Calls to NC
678
Case ? 3/5 2/5 YES YES 25 12.567 678 203
203
CHURN PREDICTION IN THE MOBILE
TELCOS INDUSTRY CASE STUDY

Andreas Zaras, Data Scientist

CHURN PREDICTION OBJECTIVE OF THE ANALYTICS METHODS TO BE USED

The objectives of the application to be presented here is to find out

which types of customers (with what characteristics) of a
telecommunications company is likely to churn.

Steps to Follow

Collect historical data

Analyze the data and develop the statistical model
Apply the model to new applicants
CHURN PREDICTION HISTORICAL DATA ABOUT 5,000 CUSTOMERS

17 Attributes

Customer Attributes
Churn
ID
(1 / 0)
CustServ
Day_Calls Day_Charge Day_Mins ….. Night_Calls Night_Charge
Calls

100 35 1169 1 6 ….. 5 1 1

250 45 5951 2 48 ….. 3 0 0

5,000 800 60 2096 2 12 ….. 4 0 1

Customers
….. ….. ….. ….. ….. ….. ….. ….. …..

1000 29 4870 1 24 ….. 1 1 0

CHURN PREDICTION AVAILABLE HISTORICAL DATA (18 VARIABLES)

Account_Length Indicates how long the account is active. Interval

Indicates how many call the customer made to customer service during the period in
CustServ_Calls Interval
examination.

Day_Calls Indicates the number of calls the customer made during the day. Interval

Day_Charge Indicates how much the customer paid for the day calls. Interval

Day_Mins Indicates the number of minutes the customer used the service during the day. Interval

Eve_Calls Indicates the number of calls the customer made during the evening. Interval

Eve_Charge Indicates how much the customer paid for the evening calls. Interval

Eve_Mins Indicates the number of minutes the customer used the service during the evening. Interval

Intl_Calls Indicates the number of international calls the customer made. Interval
CHURN PREDICTION AVAILABLE HISTORICAL DATA (18 VARIABLES)

Intl_Charge Indicates how much the customer paid for the international calls. Interval

Intl_Mins Indicates the number of minutes the customer used in international calls. Interval

Intl_Plan Indicates whether the customer has an international plan. Binary

Night_Calls Indicates the number of calls the customer made during the night. Interval

Night_Charge Indicates how much the customer paid for the night calls. Interval

Night_Mins Indicates the number of minutes the customer used the service during the night. Interval

Vmail_Message Indicates the number of voice mail messages the customer sent. Interval

Vmail_Plan Indicates whether the customer has a voice mail plan. Binary

Churn Indicates whether the customer churned or not. Binary

CHURN PREDICTION AVAILABLE HISTORICAL DATA (18 VARIABLES)

Customer Attributes
Churn
ID
(1 / 0)
CustServ
Day_Min Day_Charge Day_Calls ….. Night_Calls Night_Charge
Calls

100 35 1169 1 6 ….. 5 1 1

250 45 5951 2 48 ….. 3 0 0

800 60 2096 2 12 ….. 4 0 1

….. ….. ….. ….. ….. ….. ….. ….. …..

1000 29 4870 1 24 ….. 1 1 0

Churner/
Frequency Percent
Non - Churner
1 707 14%
0 4,293 86%
CHURN PREDICTION MODEL DEVELOPMENT
USING PREDICTVE ANALYTICS

Andreas Zaras, Data Scientist

What do Decision Trees do for us?

• They help us find which attributes or characteristics of the customers are important for classifying
churners from non - churners.

• They help us predict which customers are likely to churn and with what probability.
As you remember for each customer we have 17 characteristics e.g. evening calls, international calls, etc. The decision tree will
tell us which of those characteristics are important for classifying a customer as churner or not churner.

Account_Length Indicates how long the account is active.

Indicates how many call the customer made to customer service during the
CustServ_Calls
period in examination.
Day_Calls Indicates the number of calls the customer made during the day.
Day_Charge Indicates how much the customer paid for the day calls.
Eve_Calls Indicates the number of calls the customer made during the evening.
Intl_Mins Indicates the number of minutes the customer used in international calls.
Available Data
Intl_Charge Indicates how much the customer paid for the international calls.

(17 Variables) ........... ...........

Day_Mins Indicates the number of minutes the customer used the service during the day.

Night_Charge Indicates how much the customer paid for the night calls.
Intl_Plan Indicates whether the customer has an international plan.
Vmail_Message Indicates the number of voice mail messages the customer sent.
Night_Mins Indicates the number of minutes the customer used the service during the night.
Vmail_Plan Indicates whether the customer has a voice mail plan.
The Decision Tree Model
The Decision Tree Model
If p1 >= 26.67% then customer = churner
CREATING A PROFIT MATRIX
In the case study under consideration, there are four outcome/ action combinations:

Give Incentives
Do Nothing
to Stay
Churner

Non - Churner

Each of these outcome/action combinations has a profit/ negative profit (loss)

consequence. Some of the profit consequences are obvious. For example, if you do
nothing i.e. do not offer any incentives to stay to a non – churner you do not make
any profit and you don’t have any loss. For this analysis, the down right cell can be
immediately set to zero.

Give Incentives
Do Nothing
to Stay
Churner

Non - Churner 0
...
CREATING A PROFIT MATRIX (2)

In order to persuade a customer not to churn, the expected profit from giving
incentives to stay should be greater than the expected profit from doing nothing. So:

700 × 𝑝1 + −800 × 1 − 𝑝1 > −1.500 × 𝑝1 + 0 × 1 − 𝑝1

700 × 𝑝1 − 800 + 800 × 𝑝1 > −1.500 × 𝑝1

3.000 × 𝑝1 > 800

𝑝1 > 26.67%

Give Incentives
Do Nothing
to Stay
Churner 700 -1.500

Non - Churner -800 0

...
DEMO OF CHURN PREDICTION
USING SAS VIYA

Andreas Zaras, Data Scientist

CONCLUSION – WRAP UP

Andreas Zaras, Data Scientist

CHURN PREDICTION CONCLUSIONS
 The mobile operator’s business environment is characterized by rapid growth, maturity, changes
in regulations and advances in information technology.

 Also customers have become more demanding, there is high cost in acquiring new customers,
product lifecycles are shortening, customer loyalty and profit margins are decreasing and the
market has become saturated.

 These characteristics have transformed the mobile operators from fishermen to farmers in the
sense that their biggest priority is to retain as many of their customers and hence maintain their
market shares.

 This section demonstrated how we can use a state of the art software tool – SAS Viya – to predict
customer attrition or customer churn in a mobile using operator using analytics - based methods.
 THANK YOU!

Andreas Zaras, Data Scientist