SERVICE

by Fiona Chau

Keep
the customer
While competing on price has been
a long-time strategy for many telcos, the focus
has shifted to bundled and personalized
services as a customer retention tool-
But industry watchers say Asian ceilcos need
to be more proactive and focus on customer
lifetime value to increase their bottom lines
and hold onto customers

D
espite the continuous
growth in subscriber
additions, churn rates
have spiraled upward in
Asia over the last few
years and are becoming a major prob-
lem for mobile operators, as the compe-
tition intensified and customers slip
away to look for better deals.
According to the Yankee Group,
Asia is the only major global region
where churn has risen substantially,
from an average monthly rate of 2.2%
in 2002 to 2.7% per month in 2004. In
western Europe mobile operators have
seen their monthly average churn rate
fail to 1.8% from 2% during the same
period. Even North America and Latin
America have seen an overall decline
during the period, with annualized
monthly churn at the end of March
2005 dropping to an average of 2.4%
in both regions, according to the
research firm.
Across Asia, churn rates vary
tremendously. Operators in prepaid-
dominant markets like India and the
Philippines usually have consistent
high churn levels, with average
monthly rates of 6%-8%, as the lack
of fixed-term contracts in the pre-
paid model means there are few bar-
riers to moving to a new coperator,
says Farid Yunus, wireless/mobile
Asia-Pacific senior analyst with the
Yankee Group. Conversely, DoCoMo
in lapan, which has a customer base
that is almost entirely postpaid,
maintains the best churn rate in the
industry, with fewer than 1% of its
customers switching to a competi-
tor's network each month.
Despite a downturn in the past few
quarters, Yunus predicts that Asian
mobile operators will see their churn
rates continue to rise in the medium
term and remain in the 2-3% range.
When it comes to customer reten-
tion, Asian operators use different
approaches due to the disparity of the
region's mobile market. In high-growth
markets like China, Indonesia and
India, operators' customer retention
strategy is more focusing on price,
quality of service and network cover-
age, while they continue to build their
infrastructure and acquire new cus-
tomers. As most operators in these
countries remain preoccupied with cus-
tomer acquisition and growing their
market share, churn management has-
n't yet climbed to the top of the compa-
ny agenda.
"Most operators in large developing
markets are still experiencing rapid
growth and see no reason to invest in
combating churn now," Yunus points
out.
But as markets become more com-
petitive, operators have no choice but to
switch emphasis from volume to value,
prioritizing customer retention over
acquisition and profits over revenue
growth.
"As these big developing markets
begin to mature and the pool of first-
time users dries up, operators in these
markets would be forced to steal each

26 February 2006 Telecom Asia www. telecofnasia.net


Retention tips:
Prioritize high-value users
Segment user base
Leverage back-office data
Avoid corTipeting on price
Move beyond handset subsidies
Identify prepaid customers with targeted loyalty programs
Invest in employee training
Invest in advanced customer care and billing systems
Set manageable churn targets
Regularly evaluate and refine all loyalty initiatives
other's customers to maintain growth,"
he says. "Increased churn and shorter
customer relationships will result in
reduced customer lifetime values, high-
er marketing costs and ultimately lower
profits."
Also the fact that the pay-back time
for a new customer for Asian operators
has increased from around eight
months in 2003 to one year in 2004
means operators now need to retain
their customers longer to make a profit
from them.
Bundled and personalized
In high-penetration and matured
markets, such as Hong Kong, Taiwan,
Australia and Singapore, operators are
focusing more on customer retention.
The competitive and saturated market
environment has forced operators in
these markets to move heyond a con-
ventional price strategy to more sophis-
ticated retention strategies and become
more intelligent in targeting niche
groups with compelling offerings and
www.telecomasia.net
. le5S than that required to acquire
•^ new subscribers, who usually demand
I significant additional vaiue over their
tailored value-added services, Yunus
says.
Hong Kong's Sunday Communi-
cations, for instance, has developed one
of the most sophisticated and effective
customer segmentation models in the
world.
To differentiate itself from rivals, the
company shifted its focus to delivering
targeted wireless data applications and
services to meet customers' specific
lifestyle needs, and established a suc-
cessful brand through unconventional
and eye-catching advertising cam-
paigns. This move away from com-
moditized product offerings allowed
the company to reduce its average
monthly churn rate from 7.8% at the
start of 2002 to 3.9% in 2004.
Ash Khalek, Oracle Asia-Pacific's VP
of communications, media and utili-
ties, says product bundling is heing
used as a key strategy for customer
retention as operators in these markets
are actively shifting revenues growth
from voice to data.
SERVICE
Acquisition vs
retention
A
lthough It is often necessary to
invest to retain customers, the
investment is almost always far
existing service before they are per-
suaded to switch. To do this opera-
tors generally bave to offer free
handsets and attractive Initial dis-
counts.
Tbe Yankee Group estimates that
mobile operators in Asia generally
spend $50 to $200 to acquire a new
customer. Countries such as India and
tbe Pbilippines, predominantly pre-
paid and have little handset subsi-
dization, are at the low end of tbe
range. At tbe otber end are markets
sucb as Korea and Japan, wbere tbe
competition for higb-end customers
and the desire to migrate users to
advanced data services and handset
are intense.
By comparison tbe cost to retain
an existing customer ranges from $2
to $6 per month in fast growing
developing markets like Cbina, India
and Indonesia, and $20 to $30 in
mature and bigbly competitive mar-
kets sucb as Japan, Australia and
Singapore, according to Farid Yunus,
wireless/mobile Asia-Pacific senior
analyst witb tbe Yankee Group.
- Fiona Chau
Telecom Asia February 2006 27
SERVICE
On the rise in Asia
Annuaiized blended monthly mobile churn by region (2002-2005)
3.0%
2.5% ^ experiencing rapid
2.0% -
1.5%-
1.0%
^ ^ nfJ- »^ 'JjV
Source: Yankee Group, 2005
Meanwhile, operators in markets
like Japan and South Korea, where the
key growth is moving from voice and
data to personalized services, opera-
tors are focusing on offering innova-
tive personalized services that are tai-
lored-made for different customers. As
operators are investing heavily in their
infrastructure and backend systems,
they also are able to do real-time up-
selling and cross selling to customers,
says Khalek.
Proactive and smarter
Although some retention strategies
have proven successful in slowing
churn, industry analysts say Asian oper-
ators need to more proactive to
enhance customer loyalty and satisfac-
tion.
In most developing markets opera-
tors haven't yet got past the basic pre-
paid/postpaid and consumer/business
paradigm. Although operators increas-
ing realize that they need to become
smarter in implementing customer
retention programs and give churn
management greater priority and
resources, Yunus says most operators
will find it difficult to change from their
current mass-acquisition mindset to
28 February 2006 Telecom Asia
Asia-Pacific
W. Europe
North America
Latin America
become strong, customer-focused
organizations.
Even in mature markets where reten-
tion is the priority, there is still much
that need to be improved, from cus-
tomer service and proactive outreach to
loyalty programs and subsidized servic-
es/handsets.
Take handset subsidizes for example.
Most operators still dedicate the bulk of
customer acquisition and retention
resources to handset subsidies. But this
is no longer a strong differentiator and
is only effective at the point of renewal,
which is usually too late, Yunus
explains. Instead operators should
introduce a range of tangible benefits,
including points-based reward schemes
and exclusive value-added services.
At the acquisition stage, he notes
operators must be more discerning
when attracting new subscribers. They
must identify and prioritize high-value
customer segments and launch new
products, marketing and incentives
accordingly. Instead of classifying users
based on historical APRU, operators
should also consider more sophisticat-
ed parameters, such as the net lifetime
value or potential value of a customer.
They should also assign cut-off thresh-
"Most operators in
large developing
markets are still
growth and see no
reason to invest in
combating churn
now"
olds for unprofitable customers, weigh-
ing provisioning, retention and man-
agement costs against current and
potential individual returns, then do
nothing to keep these customers.
"Being more selective about which
customers to retain will reduce opera-
tional expenditures and enable the
operator to divert resources to improv-
ing high-value customer care," Yunus
says.
Operators should also leverage back-
office data - call and event data records
to obtain clear insight of the customer's
behavior and make efficient use of this
information in real time to proactively
offer tailored loyahy initiatives for pri-
oritized segments.
The problem, however, is that most
lack the necessary CRM tools to gain
this visibility and be able to analyze
individual client behavior and exploit
this data in a cost-effective way.
Khalek concurs, saying a lot of bun-
dled services offered by operators in
mature markets are very generic and
fail to offer personalized services based
on customer preference.
What operators need to do is move
to granular segmentation and offer
bundled services that match different
segment of users. More importantly,
they should be able to gather real-time
"intelligent" so they can up-sell or
cross-sell to subscribers when they use a
service - tike their counterparts in
Japan and Korea do. t^ecom .^i
www.telecomasia.net