Cvmbasics 140128082957 Phpapp02

CVM Introduction
Eric Smith
July 12, 2001
Agenda
Introduction
Background on CVM
CVM Case Studies from Bell Mobility

• Background
• Prepaid
• Postpaid
Engagement Structure
Page 2
Introduction
Session Goals
• Goals:
– Introduce CVM concepts for C-Level Clients and Prospects
• Worksteps
– Outline why CVM is critical for companies to meet their financial objectives
– Explain components of CVM: data for analysis; understanding of customer
economics, and customer behavior patterns; offer design; results from tracking and
improvement cycles
– Show Bell Mobility examples in the prepaid and the postpaid segments Lecture based
– Work on the Sprint PCS case

• Structure work – timeline, team, deliverables, initial hypotheses
• Deliver findings – story line analysis, create recommendations in the areas of
churn and migration - 2 teams Case workshop based
The two parts – lecture and case based – will ensure that both the tools and
the examples of CVM are introduced.
Page 3
Introduction
What is Customer Value Management (CVM)?
• CVM helps corporations develop tailored products and services to their

customers, in order to maximize profits on an individual customer level
• The goal of CVM is to move towards mass customized offers and price
discrimination based on:
– Willingness to pay (both consumer and corporate)
– Current customer value and usage profiles
– Churn and migration risks
• CVM enables companies to manage their firm value in the face of rapidly
decreasing prices and potentially slower acquisition growth
• Specifically, CVM generates or preserves value through:

– Usage stimulation through micro-targeted offers
– Rate plan and feature migration management through improved understanding of
reprice potential and proactive offer design
– Churn prevention through improved predictive modeling and targeted retention
strategy
– Improved acquisition strategies which consider existing base impact
Page 4
Introduction
What is the difference between CVM and CRM?
Customer RELATIONSHIP
Customer VALUE Management
Management
• Improve profitability by • Retain customers by improving

Focus
delivering targeted offers customer interactions
Lever for Change • Product offers • Customer touchpoints
Approach • Hypothesis, data-driven • Integrated, comprehensive
• Capture detailed customer data; • Channel integration to offer a

Capabilities ability to deliver micro-targeted consistent experience; “know
offers the customer”
Metric • Customer profitability • Customer retention
Customer Expectations • Exceed on customer value • Exceed on customer service
• Direct customer to most • Streamline and improve

Customer Service
profitable offerings processes
• …is acceptable for low value
Attrition… • …should be reduced
customers
• Customer migration patterns; • Customer needs and
Required Understanding
reasons for churn; value drivers expectations; channel usage
CVM is focusing on creating profitable customer relationship.
Page 5
Agenda
Introduction
Background on CVM

• Background
• Prepaid
• Postpaid
Page 6
Background on CVM
Development of CVM
• The CVM practice was developed by DiamondCluster in North America for wireless
carriers. Since then we have used it for LD and have developed the IC for retail
banking
• Successful CVM efforts bring together a wide variety of skills in the DCI consulting
team, including marketing strategy, microeconomic analysis, statistical modeling,
and information technology deployment
• Current CVM initiatives:
Bell
Canada
Bell
Mobility
Sprint PCS
TIM
Telesp
CW Optus
Telecom New Zealand
Page 7
Background on CVM
What is the Economic Foundation of CVM?
Before CVM approach After CVM Approach
Price Additional potential revenue/ consumer Price Uncaptured consumer surplus

surplus created by micro-offers Carrier revenue
Uncaptured consumer surplus
Carrier revenue
Consumer demand
curve shifts out with
tailored products
Rate Plan 1 Market

Existing Demand Curve Market
Base Focus Demand Curve
Rate Plan 2
Existing
Base Focus Broad
New
Rate Plan 3 Rate Plan
Existing Old - New
Base Focus Users
Quantity Micro-Offers to Existing Base Quantity
The result of a successful CVM approach is the shifting out of the

consumer demand curve and the capturing of consumer surplus.
Page 8
Background on CVM
How Do We Approach CVM?
DATA
all data at individual transaction level:
call data records from switch, daily account adjustments and transactions, daily account profile updates
Customer Customer Offer Results Tracking/

Economics Behavior Design Improvement Cycle
• Understand drivers of • How do customers • Target individual • Quantification of
individual user behave over time? users with specific impact, incorporate
profitability, profits by • What types of behavior offers results into future
are linked?
segment offer design
• What actions change
behavior and the
corresponding
economic drivers?
FINANCIAL RESULTS
Measurable financial impact such as
usage stim for low users, prevented migration reprice, prevented churn
Through micro-targeted offers, DiamondCluster has used subscriber-

level data to create real financial results, in usage, migration, and
churn.
Page 9
Background on CVM
Mobile Markets in the US
Industry Growth Price Declines Product Launches

# of subscribers Price / minute ($)
Penetration
200 • VAS Services
Merril Lynch 177 60 mins. 100 mins. 250 mins.
180 Bear Stearns
• Roaming inclusive
500 mins. 1,000 mins.
Strategis 153 66%
plans
160 0.6
0.54 • Text messaging
140 140
126
0.5
0.48 services
129 52% 0.45 0.45
120
101 116
0.43 • WAP, browser
100 83 86
102 114
120 0.4 0.37 services
106 0.33
80 67
98 43% 0.33 • Location based
0.3
54
67
86
0.23
services
60 0.2 0.21 0.19
54 67
0.2
0.21 • 3G services
54 0.16 0.16
40
0.16
20 0.1 0.12 0.12 0.10
0.09
0
0.0
Apr. 27, Feb. 15, Aug. 9, Apr. 17,
97
98
99
*
*
*
00
03
02
01
19
19
19
20
20
20
20
1998 1999 1999 2000

Year
Source: Merril Lynch. Source: Wireless week, Washington D.C.

(*) forecasted.
The mobile telecom industry is unique in its rate of growth, price

declines, and changing nature of end user services, requiring dedicated
thinking about its base management issues.
Page 10
Background on CVM
Relative CVM Complexity for Mobile Operators
• Frequent separation of purchaser and consumer

• Limited transferability (name and ID)
• Limited separation of • Huge potential range of products (city pairs)
purchaser and consumer • Competition per trip, with medium switching costs
• Some competition by call
with override codes
• Low switching cost Mobile
carriers
High Airlines
• Frequent separation of
Complexity of
CVM Offers
purchaser and consumer

Potential
• No transferability (unique
Long distance mobile number)
operators • No competition per call,
Financial competition by bundled
services services only, with high
Low switching costs
Traditional retail:
movies, clothing,
music, books, etc
• No separation of purchaser • No separation of purchaser
and consumer and consumer
• High potential Low High • Limited transferability
transferability • Large range of products
• Large range of products Transactions per User • Competition per
• Competition per item, low transaction, low to medium
switching costs switching costs
The mobile sector is one of the most complex industries for CVM data
analysis, given the sheer volume of customer transactions and the
potential complexity of pricing each transaction.
Page 11
Agenda
Introduction
Background on CVM

• Background
• Prepaid
• Postpaid
Page 12
CVM Case Studies
Bell Mobility Overview
EOP Subscribers Revenue
000s subs C$M
Total subs growing at 20-25% p.a. Prepaid Revenues growing at 7-22% p.a.
Prepaid share stable at 40%
1036.6 Postpaid
857.0
126.3 509.1 1,394
1,134
863 929 981
1825.5
1221.0 1349.0 1335.4 1454.9
97 98 99 00 01
97 98 99 00 01
Market Share (Subs) MoU Postpaid MoU

increasing at
Minutes per Due to platform error, 5-13% p.a.
% Market share stabilizing after incoming minutes are
entry of two, digital only month not billed for Postpaid
competitors 221
186 195 Prepaid
165
95
32.2% 30.1% 28.4% 27.2% 27.1%
37 42 44
97 98 99 00 01
98 99 00 01
Notes: All 2001 figures are estimates. Source: company publications.
Bell Mobility is the incumbent wireless carrier in Ontario and Quebec, with
C$1.4B revenue and 2.8 M subscribers.
Page 13
CVM Case Studies – Background
Overview of CVM Phases at Bell Mobility
Bell Mobility CVM Approach
• Market growth focused in pre-paid segment (BM • Phase I: Prepaid

had no presence, competitor launched prepaid - Analyzed revenue impact of introducing prepaid
product) product through estimation of cannibalization of
low end post-paid revenue and growth in pre-paid
• Low churn rates (1.5% per month) compared to subscriber base and revenue
industry average
• Phase II: Postpaid
• Lagged competitors on MoU but led on average - Analyzed revenue impact of existing strategies for
revenue per minute (ARPM) usage stim, customer retention, and rate plan
migrations. We widely deployed successful
• Complex systems and offers - 1,200 separate rate initiatives and abandoned or modified currently
plans, 300 features unsuccessful strategies
• No analysis of migration patterns • Phase III: Enterprise

- Developed tool to calculate profitability of each
• Sophisticated, third generation data warehouse customer in the segment and the impact of
prior to DCI presence, but no CDR level data and alternative offers in terms of value to customer
minimal tracking of campaign effectiveness and profit to BM
Evaluation of the competitive positioning of Bell Mobility led to

prioritization of CVM initiatives.
Page 14
CVM Case Studies – Background
Benefits of CVM at Bell Mobility
Impact of Successive CVM Phases Achievements from Each Phase
Annual EBITDA impact
(C$, million) • Phase I: Prepaid
$100 18% improvement - Analysis of profitability of prepaid product led to
$90 of annual EBITDA 7
18 successful product launch and total revenue
$80
6 gains of C$10 million per annum (based on
$70 40% cannibalization of low-end post paid)
$60
$50 42 • Phase II: Postpaid
98 - Postpaid analysis focusing on targeted feature
$40
sales, migration management, churn and
$30
improved acquisition strategies led to revenue
14
$20 savings of C$70 million per annum
8
$10
10
$0 • Phase III: Enterprise
Pre-paid Targeted Migration Improved Improved Enterprise Total
revenue1 feature management3 acquisition churn5 revenue6 annual
- Strategic roll-out commencing March 2001.
sales2 strategies4 benefit Estimated revenue savings of C$18 million
1. Due to successful launch of pre-paid product, after DiamondCluster analysis showed cannibalization of low -end
postpaid to be 25%, much lower than 40% breakeven. C$10M figure based on value of continuing prepaid offer and
through targeted feature sales, migration
conservative 40% cannibalization assumption. management and improved acquisition
2. Assuming 5% of feature repriced revenue saved for 10 months per customer, 600,000 features on customer
accounts strategies (based on savings proportional to
3. Assumes 100,000 migrations per month for 12 months. For serial migrants assumes 1,000 people per month causing
C$100 reprice loss per month. Backdating 10% of migrations by 2. 5 months at C$10 reprice per month. Proactively consumer segment)
offering alternatives to 10% of migrations thus reducing reprice by C$7 per months for ten months.
4. Prevented launch of new off -peak clock - value based on assumption that 20% of customers who would be at least
20% better off would have migrated to the new rate plan.
5. Stopped C$0.5M monthly outbound churn effort where the economics of the campaigns was negative.
6. Based on similar usage, migration, and acquisition strategies applied to enterprise segment, and adjusting for relative
percentage of revenue for the base, including the cost of reprice and the benefit of increased account share.
7. Based on estimated 2001 EBITDA of C$534M.
CVM has been extremely effective in generating new revenue streams and
eliminating revenue loss resulting from poorly targeted programs.
Page 15
Agenda
Introduction
Background on CVM

• Background
• Prepaid
• Postpaid
Page 16
CVM Case Studies – Prepaid
Overview of Prepaid
Background & Issues CVM Analysis Strategy/Results
• No lifetime profitability model to • Developed simple economic model • Process in place to apply model to
determine absolute returns for a of lifetime profits per user, gaining all new acquisition programs,
new acquisition campaign support for all inputs from relevant handover to client completed
(prepaid/postpaid) departments
• Limited understanding of relative • Applied model to prepaid and low- • Gained support for C$5M in
lifetime profitability of new adds end postpaid users, determined prepaid marketing by showing
and the role of cannibalization relative profits and breakeven actual cannibalization rates close
(prepaid/postpaid) cannibalization rates to 25%, much less than breakeven
• Case study analysis to determine rates of 40%+
how actual cannibalization rates • Total value of segment C$10M per
compared to breakeven year, even at high cannibalization
rates
• Limited understanding of the • Applied model to each individual • Refined strategy to migrate top-end
distribution of lifetime profits prepaid user, quantifying months prepaid users to postpaid, avoiding
across user base, role of value to breakeven and total lifetime expected revenue hit of 12%
management returns • Gained support for general usage
• Reviewed scope for prepaid usage stim program
stim, prepaid to postpaid migration
Using CVM tools, we are able to measure lifetime profits for prepaid and
postpaid users, manage cannibalization before prepaid programs were
rolled out, and prioritize prepaid migration and usage stim strategies.
Page 17
Overview of Customer Economics Illustrative
Shift in Lifetime
value of $100
MoU by 20%
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9
Customer churns in
Customer month 9
Breakeven in 5 migrates from $60
months plan to $40 plan
Cumulative customer
EBITDA
Usage charges
Access charges
Cost of acquisition
Cost of maintenance
Customer Key economic factor fixed for existing base
Acquisition cost Key economic factor which can be influenced
Our modelling of customer economics is the foundation of our CVM

analysis.
Page 18
Economics of Prepaid Subscriber
Customer over Lifetime Present Value

$300.00 (C$)
Lifetime $500
value $183
$400 100
$200.00
Cumulative Lifetime
(C $)
68 margin
EBITDA $300
Breakeven in = 53%
10.5 months 68
$100.00 454
$200 35
EBITDA
per month
$100 183
$0.00
1
10
13
16
19
22
28
31
34
25
$0
Lifetime Direct Cost Commis- Network Customer EBITDA
Revenues of acquisition sions on costs service
(without top-ups costs /
($100.00) advertising Bad debt
overheads)
Notes: Assumes no pre-to-post upsell.

Lifetime revenues based on ARPU of $17.00 / month (includes $50 increase in package price from $99 to $149)
Direct COA costs include: $13 dealer bonus, $6 coop, $40 dealer margin, $10 activation costs, $15 packaging costs, and $16
handset subsidy ($115 phone cost - $99 revenue before $50 package price increase)
Commissions on top-up at 15%. CS costs at $1.25 / month, bad debt at 0.25%. Lifetime churn at 3%, discount rate of 15%.
Using actuals, our model showed that the lifetime value of a new prepaid
user was $183, with a breakeven time of 10.5 months.
Page 19
Economics of Low-End Postpaid Subscriber
Customer over Lifetime Present Value
Lifetime (C$)
$500.00 value $406
$1,600
$400.00
Cumulative $1,400
Breakeven in 279
$300.00 23 months EBITDA
$1,200
103
Lifetime
$200.00 $1,000
(C $)
EBITDA margin
per month 515 = 28%
$100.00 $800
1469
$0.00
$600
167
$400
1
6
11
16
21
26
31
36
41
51
56
61
66
46
($100.00)
$200 405
($200.00)
$0
Lifetime Direct Cost Residuals Network Customer EBITDA
($300.00) Revenues of acquisition costs service
(without costs /
advertising Billing /
($400.00) overheads) Bad debt
Notes: Assumes no 2nd headset subsidy over customer life.

Lifetime revenues based on $25 access revenue + LD charges (10% of traffic at $20/minute)
Usage at 150 minutes out of 200 min bundle each month
$50 bad credit, Residuals at 7%
Direct COA costs include: $13 dealer bonus, $15 coop, $60 dealer commission, $15 activation costs, $0 packaging costs, and $176
phone subsidy ($295 cost -$119 revenue)
CS costs at $2.50 / month, bad debt at 1.5%. Billing at $0.63 / month.
Lifetime churn at 3%, discount rate of 15%.
While entry level postpaid users have roughly twice the lifetime values of
prepaid users, their breakeven times are also twice as long.
Page 20
Cannibalization Break-even
Users Year 2000 Revenue from New Users
000s $M 52% breakeven cannibalisation rate, revenue

Prepaid 100 74
700
Postpaid 75
50 43
56 64 73
600 25 31 47
0
20% 30% 40% 50%
500
With Prepaid Case Cannibalisation rate without Prepaid Case
400 Lifetime Revenues for New Users

425
300 $M
600
471 36%
400 236
200
368 494 559
325 200 365 430
283 235
240
100 0
155
20% 30% 40% 50%
With Prepaid Case Cannibalisation rate without Prepaid Case
0
20% 30% 40% 50% Lifetime EBITDA Value of New Users Added
Cannibalization rate
With Prepaid Case Without Prepaid Case $M 43% breakeven cannibalisation rate, subscriber value
200 190
Notes: 425,000 target prepaid users and 155,000 mobility
postpaid users from year 2000 plan 102
100 160 184 208
In year revenues from prepaid= $102/users ($17.00 ARPU x 6 months), 88 136
lifetime revenue value $554 0
In year revenues from postpaid user =$197.40/user
($32.90 ARPU x 6 months), lifetime revenue value $1519 20% 30% 40% 50%
Lifetime value per user: $239 prepaid, $565 mobility postpaid With Prepaid Case Cannibalisation rate without Prepaid Case
Even at a 40% cannibalization rate, prepaid was a net positive contributor to both
BM’s year 2000 revenue (C$10M per year) and the lifetime EBITDA value from new
users (C$6M per year).
Page 21
Existing Base Cannibalization – BM
Daily Gross
Activations
1,000
900
January Average 514 per day Launch of low
end postpaid
800
plan
700 February projected 632 average per day 26%
GAP
600
500
400
300
200 February actual average 468 per day
100
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Note: Reporting difficulties resulted in zeros for Jan 6 and 7, those subs added in days following Jan 7.
Feb data through Feb 27.
The early impact of the low end postpaid plan suggested internal BM prepaid
cannibalization of postpaid of around 26%. While substantial, this result represented
the upper limit, given the postpaid advertising campaign and dealer incentive
structures and training.
Page 22
Prepaid Customer Distribution
Minutes of Use Revenue

Avg. ARPU for user group Total Monthly Revenue
Avg. MoU for user group C$ C$ M
300 140 7
Cumulative Net ARPU

Cumulative Net MoU 120 6
250 Total Cumulative Revenue
Avg net MoU
100 5
200
80 4
150 Top 50% are

Top 25% of
responsible for
base has an 60 3
96% of total
MoU of 85 Bottom 25% revenue
100 has an MoU of Top 18% are
less than 2 40 responsible for 70% 2
of total revenue
50 1
20
0 sub #s 0 0
0 50 100 150 200 250 300 350 400 0 50 100 150 200 250 300 350 400
# of subscribers (‘000s)- sorted by descending Net MoU # of subscribers (‘000s) - sorted by descending Net ARPU
Note: Net revenue includes all contra elements.
Very few customers represent the majority of prepaid minutes and revenue,
requiring targeted, segment specific action.
Page 23
Prepaid Customer Profitability Segments
2,000 280
Lifetime EBITDA per user

228
1,500 Average MOU per user 210
Lifetime EBITDA per user
Average MOU per user

1,000 140
1,688
65
500 70
25
9 301
0
0 0
(251) (175) (39)
(500) (70)
Zero users Low users Medium users (20- High users Very high users
(<20 min) 59 min) (60-200) (200+)
On average, only High and Very high users have a positive EBITDA...
Page 24
Migration of Prepaid Subscriber to Postpaid
80
Reprice at MoU of
Monthly spend (C$)
60
200 is C$29.50
aid
Revenue gain if Prep
upselling from MoU
40 of 60 is C$7.00
RealTime 150
20
0
0 40 60 80 120 160 200 240
No upsell Upsell Minutes
too big of a “Upsell” only to avoid churn
target of Use
stretch
MoU 0-60 MoU 60-80 MoU 80 +
% of users 87.3% 4.5% 8.2%
% of minutes 39.5% 10.6% 49.9%
…As a result migrating high users to postpaid is expensive, representing

an average reprice of 36% for users over 80 MoU.
Page 25
Value Drivers – Days of Use
# of Key MoU driver: number of days of use Key MoU driver: usage per day MOU per
accounts day
# of accounts Daily MoU
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Days of use
For low to medium prepaid users, MoU / day is surprisingly constant. The
main driver of usage is the number of days the phone was used. For high
users, MoU / day is the main revenue driver.
Page 26
Targeted Usage Stim – Off-Peak
Before After hours feature After After hours feature

• Phone used 17% of days • Phone used 32% of days
• Daily ARPU $0.17 • Daily ARPU$0.39 (excluding $25
Daily
• Daily MoU 0.45 subscription fee)
MOU
• Daily MoU 2.29
Index
Day proxy dMoU Free proxy dMoU Nights proxy dMoU
-17 -14 -11 -8 -5 -2 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70
Day Relative to Take-up (low users)
A usage stim initiative targeted to the prepaid segment showed that low
users could be drastically stimulated with an off-peak offer.
Page 27
Agenda
Introduction
Background on CVM

• Background
• Prepaid
• Postpaid
Page 28
CVM Case Studies – Postpaid
Overview of Postpaid
Background & Issues CVM Analysis Strategy/Results
Data Sources • Crated new transaction level (CDR) data • Reduced time to track impact of
• Existing data sources are aggregates. sources, linked them with existing initiatives, greatly increased targeting
Most requests are not lifecycle based profile data bases precision
Low usage • Analyze psychology effects of • Implement targeted offers based on
• MoU is low compared to industry alternative stim offers and effects of observed stim in trial offers
average and drives revenue negative training on multiple usage streams
events.
• Commissions paid on usage features • Reviewed profitability of feature sales, • Reprice reduced on feature sales by
no matter what pre-existing usage targeted accordingly C$8M per year
streams were
Declining ARPU/Migrations • Calculate revenue gain from alternative • Generate recommendations for CSRs to
• Downward migrations accounted for offers that replace downward avoid downward migrations where
52% of lost access revenue (48% loss migrations possible. Savings of C$14M per year
from churn) • Analyze migration impact resulting from • Revise outbound acquisition strategies,
• Upward migrations accounted for new acquisition offers avoided reprice of C$42M per year
37% of gain in access revenue gain
(63% from new acquisitions)
Churn • Enhance churn prediction model • Shift resources to inbound save efforts
• Relatively low churn rates (1.5%) • Calculate relative returns from • Saving of C$6 million per annum
• Most resources devoted to outbound outbound retention campaigns based
retention campaigns on model predictions and inbound save
offers
Test Environment • Created cross functional team to launch • Executed 8 campaigns in short time
• Lack of clean, controlled and support small scale initiatives very frame
environment makes product quickly across all inbound and • Trained customer management
development slower, riskier, and outbound channels resources on product development
lower impact cycle, including feedback from CS and
• No proper understanding of offer tracking results.
value vs. return
CVM activities in the postpaid segment focused on stimming low MoU customers,
managing upward and downward migrations, improving customer retention and
creation of ongoing test environment.
Page 29
Mobile Industry Data Source Comparison
Traditional Data
CVM Datamart
Warehouse
• Aggregated over time • Individual call records, account

• Processed / billed data profile changes
Data Level • Highest possible level of
granularity
• Weekly, monthly • Twice a day

Frequency of • Delayed by bill cycle • Date is absolute (not shifted in
• Shifted across users depending time) across users
update
on bill cycle
• Accessible by any user through • 10+ times more data

a simplified graphical user • Used by technically and statistically
Ease of interface more advanced analysts
support • Limited flexibility in creating • Very flexible
and use new variables • Mostly used for strategy definition
• Mostly used for reporting
To achieve the full potential CVM in the mobile telecoms market, near real
time datasets at the individual transaction level need to be constructed and
maintained.
Page 30
Key Components of CVM Datamart
Usage and Account Historical

Bill Data Change Data Data
• Individual call records • Individual account / user • Usually available from DWH
profile transactions • Up to 24-48 months of
• No delay (up to 1 day) - Activation observations
- Deactivation • Bill (usage & revenue)
• Roaming usually not - Migration between RPs, aggregates
included features • Profile (Activation, rate plan,
features
• Prerated CDR (includes call • Creates near real time activation/deactivation)
type definitions, distance) customer profile and • Information is delayed but
historical profile by day 100% accurate and rich in
history
Lifecycle View
Cluster has developed for its clients a CVM Datamart, which incorporates
all customer transactions in a near real time format.
Page 31
Data Foundation
Real-time Datamart Real-time
Needs System Architecture Datamart
Switches
1 • Usage
Postpaid database
Real-time usage User
Customer - 3-6 months of
variables (for Assign Profile
Service CDRs
usage database) User Info Change - 6-12 month
Prepaid of daily
aggregates
Split M2M/ Daily
Remove Pre-rating Activity
• Profile
2 database
Duplicate Log
Each account Voicemail - 12 months of
transaction (for 1 real-time
2
profile database) profile
Feeds
Browser captured twice • Other data as
Billing
daily before needed
billing - Irate calls to
3 CS
Roaming - External
User information Data warehouse agency data
for entire lifecycle (monthly (demo-
summary of bill 3
graphics)
cycles)
Update once
per month
DiamondCluster initially constructed the CVM datamart as proof of concept, then

productionalized it later. Our CVM analysis also relied on historical data from bill line
item based datawarehouse.
Page 32
Existing Base Value Drivers
• High breakage users USAGE • Usage trends precede

have high churn rates migration both upward and
• Usage declines downward
prior to churn • Out of bundle
revenues
• LD
• Roaming
EXISTING
CUSTOMER VALUE
CHURN MIGRATION
• Total value loss • Partial value loss
As a result of our modelling of customer economics, we have centered our

CVM analyses on usage, rate plan and feature migration, and churn.
Page 33
Usage as a Predictor of Migration and Churn
Usage before Migration Usage before Churn

MoU Index (100)
130 Migrations Up 100%
Migrations Down 27%
120 48% 48%
75% 55% 55%
72%
110
50%
100 73%
25% 52% 52%
45% 45%
90 28%
0%
80 Rate Rate Rate Rate Rate Rate
Months prior Months after group 1 group 2 group 3 group 4 group 5 group 6
to migration migration
70 Usage drop in month 1 - 6 prior to churn
Usage in month 1-6 prior to churn compared to

60 month 7-12 prior
Month of
Migration
Notes: 100%is the average usage through month 7 - 12 prior to churn.
Usage changes precede customer transitions. As observed at client, migrants up

have usage stim of 13%, migrants down usage loss of 10%, and churners usage loss
averaging 50% in the 6 months prior to status change.
Page 34
Value Drivers – Modes of Use
Theory Observations
150 ANALOG 150 DIGITAL
120
• Psychology is main 100 120
hurdle to usage/ No Association 100
Non-Toll
80
Non-Toll
80 No Association
revenue stim 60
Long 40
60
- Mobile for safety 40
only Distance 20
1 min toll to 1.8 min non-toll 20
0 1 min toll to 1.7 min non-toll
0
- Price perception - 3 6 9 12 15 18 21 24 27 30 33 36 39
- 3 6 9 12 15 18 21 24 27 30 33 36 39
vs. actual price
Toll Minutes Toll Minutes
• Shift consumer
1 min incoming to 1 min outgoing
psychology in two 100 100
Outgoing
Outgoing
phases 80 80
- Deeply discount 60
1 min incoming to 1.2 min outgoing 60
usage features to Incoming 40 40
encourage new 20 1 min incoming to 3.2 min outgoing 20 1 min incoming to 3.6 min outgoing
modes of use 0 0
- Customer gets in - 3 6 9 12 15 18 21 24 27 - 2 4 6 8 10 12 14 16 18 20 22 24 26 28
Incoming Minutes Incoming Minutes
habit of making
more calls, break
1 min off-peak to 0.7 min peak
association of 80 100
70
expense with 60 80
each call 50 1 min off-peak to 0.8 min peak 60
Peak
Peak
40
Off-Peak 30 40
20 1 min off-peak to 3.6 min peak
1 min off-peak to 3.3 min peak 20
10
0 0
- 2 4 6 8 10 12 14 16 18 20 22 24 26 28 - 2 4 6 8 10 12 14 16 18 20 22 24 26 28
Off-Peak Minutes Off-Peak Minutes
Changing the number of modes of use dramatically increases total usage, as

customers begin to think of their mobile like their home phone.
Page 35
Value Drivers – Mobile Browser Usage
Low freq., 1-2 weeks

MoU/User Before they started using the Med freq., 3-5 weeks
browser, high frequency High freq., 6-10 weeks
users had declining MoU. Browser MoU
After using the browser, they
40
had the highest MoU stim.
32
26
9 363
350 3
3 338
307 312 330 323
319
3
277 0.2 0.1
267 284
255 261 272 268
239 239
227
-3 -2 -1 1 2 3
Relative Month
Notes: User base: 473 browser users started to use the browser in June - July cycles and who did not have ESN# change or migration within ±3 months
from the time when first used the browser and has more than one browser call. MoU adjusted for seasonality. User base for seasonality indexes
users who activated before Nov. 1999 and were active as of Sept. 2000, did not have and ESN change and did not activate the browser.
All users who started using the mobile browser experienced voice stim in addition to
the other, direct benefits. Furthermore this voice stim has proved to be stickier than the
data minutes themselves for all data users.
Page 36
Campaign Targeting
20% 18.4% 19.2% 25.0% 12.1% 25.3%
15%
Percentage of Users
10%
5%
0%
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200+
Bundle Utilization Percentage
Usage Pattern High breakage Low breakage Overage
Sell subsidized/free usage Sell full price/discounted VAS Offer stretch features, Upward migrate/Offer stretch features, other
Action
features features other VAS (2) VAS
Priority High Medium Low Low
• Reduced churn and • Out of bundle usage • Keep out of bundle • Reduce churn of high value users
Expected Benefit downward migration revenue usage revenue • Keep out of bundle usage revenue
• No risk of reprice • Some LD stim • Secure higher access fee
• Some LD stim
All campaigns have been carefully targeted on customer behavior, such as bundle
utilization, to maximize effectiveness while avoiding reprice. Estimated in year
EBITDA savings of C$8M per year.
Page 37
Migration Importance – Value Compared to Activation/
Deactivation
Downward Migration vs. Deactivation Upward Migration vs. Activation
Access Value Number % of Total Value Access Value Number % of Total Value
Number of Change Number of Change
Migrations Down $-622,985 44,600 52% Migrations Up $987,384 35,732 37%
Users Churn $-581,034 20,001 48% Users New Users $1,707,074 72,991 63%
35,000 45,000
Churn 40,000 New Users

30,000
Migrations Migrations
35,000
25,000
30,000
20,000 25,000
15,000 20,000
15,000
10,000
10,000
5,000
5,000
0 0
0 -10 -20 -30 -40 -50 -100 <-100 0 10 20 30 40 50 100 <100
Drop in Access Charges Increase in Access Charges
Notes: Data taken from CLUSTER migration model, based on May usage and access revenues.
Includes prepaid rate plans.
Migration direction defined by an increase/decrease in access revenue after the migration.
Migration activity is a large value driver previously untracked. It represents

52% of all gains and 37% of all losses in access revenues.
Page 38
Migration Addressability – Complexity of Combinations
Ranking According to Ranking According to
Number of Migration Events Revenue Impact
Last 1,234 rate group combinations Must examine 186 rate plan
38 rate plan 38 rate plan combinations to include
combinations contribute 24% of revenue impact, combinations
but are too small to analyze (less 80% of migrations and 80% of
represent represent revenue impact
80% of than 20 migrants per month 48% of migrations
120% 120%
migrations and 47% of revenue
39% of expected impact
revenue impact
100% 100%
% of Total Revenue Change

% of Total Migrations
80% 1,272 Total 1,272 Total

80% Combinations
Combinations
for February for February
60% 60%
12 rate plan combinations 26 rate plan
represent combinations represent
61% of migrations 41% of migrations and
40% 12% of revenue impact 40% 40% of revenue impact
20% 5 rate plan combinations 7 rate plan combinations

represent 20%
represent
42% of migrations 17% of migrations and
9% of revenue impact 20% of revenue impact
0% 0%
0 500 1000 1500 0 500 1000 1500
Rate Group Combinations Rate Group Combinations
Sorted by Number of Migration Events Sorted by Revenue Impact
Note: Expected revenue combination based on differences on average ARPU per plan.
While total migration activity is complex the distribution of effects is highly skewed.
Approximately 3% of migration combinations could provide 80% of the migration
events or 39% of total access revenue created and lost.
Page 39
Migration Example: Policy Recommendations
Description -
Key Segment Affected Outbound Inbound
• Impose fees or future date all downward • Do not call • CS policy
Prevent Certain migrations to prevent abuse through multiple • Systems issues on validity of
Migrations migrations future dated transactions
• Instead of allowing customers to downward • Do not call • Recommendation engine for

Substitute migrate, give them a free feature and secure targeting
Certain the higher access fee • Systems issues: free feature
Migrations • Example: instead of 400 to 200, 400 to 400 with — Rate Package lock
free feature
• Recommend customers a rate plan which is • Target certain outbound • Recommendation engine for
more beneficial to the company and to migrations based on targeting and offer design
Shift Customers customer feature sales • Stretch features for upsell
to Certain RPs • Example: move customers from old rate
package to new rate package
• Instead of contacting customers individually — • Only accomplished • Recommendation engine for

slow and expensive — move them to a new rate where in year revenue targeting and offer design
plan automatically constraints are met
Flashcut • Flashcut those users on Flex with long term • Recommendation engine
average less than 50 for finding ideal plan or
targeting
• Changing the migration policy would cause too • Do not call • Fulfill Requests
high churn risk
Leave Intact • Example: Digital North America / Real Time
Canada where migration reprice is significant,
but churn risk is even higher
None of these tactics are universally applicable, but on a targeted basis

they can address the majority of migration reprice, saving C$14M per year.
Page 40
Acquisition Reprice
Background % % of Subs Reprice ($M)

In year revenue reprice (annual)
16% $15
• Competitor changed off-peak clock, 14% $10
beginning off-peak at 6 PM instead of 12% $5
10% $0
8 PM 8%
($5)
($10)
• Initial reaction was to match competitor 6% ($15)
4% ($20)
clock across entire base 2% ($25)
0% ($30)
• By analyzing actual reprice on the
-100
-80
-60
-40
-20
20
40
60
80
% better offer
existing base, calculated that it would new plan
require a 3% increase in market share

to compensate for the expected reprice (assuming 20% of users with
$50 $40.28 10% or more better off switch)
• Final recommendation was to match
In year rev. impact

(reprice) $M)
only on certain rate plans, limiting $25
$11.94 $12.91 $16.40
reprice
$0
• Result was an expected savings of Original idea Alternative A Alternative B Alternative C
$26M annual EBITDA matching (match on OP (match on OP (match on OP,
across the plans) + RT plans) RT and flashed
base old)
By analyzing the expected reprice using CDRs, saved Bell Mobility an

expected $26M from avoided reprice.
Page 41
Churn — Difficulty with Outbound Campaigns
Deactivation Impact ARPU Impact

During the period between pull and mailing 13%
of both the target and control group deactivated
Deactivation implying late action on save attempt
rate ARPU
6% $155 $153
5.5% Target Target
Control Control
5% $150 $152
5.2% $146
3.7% 3.6% 3.6% $143
4% 3.4% $145 $143
3.2% $141 $142
2.9% $144 $140
3% 3.4% 3.5% $140 $142
3.2% $137 $141 $142
3.0% $140
1.9% $137
Peak in 2.6% 2.5%
2% deactivation $135
rate 2 months Reduction in ARPU $135
1.7% prior to indicates that high
1% campaign $130
Campaign launch value users churned Campaign launch
suggests
outdated data at higher rate.
0% $125
Mar Apr May Jun Jul Aug Sep Oct Mar Apr May Jun Jul Aug Sep Oct
The targeting difficulties on outbound churn campaigns have driven poor

actual results, contrary to carrier’s previous perception.
Page 42
Churn — Outbound Loyalty Funnel Illustrative
Existing postpaid
consumer base
(1.0M users)
93% of users taking up
Targeted users based on the offer, however, are
predictive churn model non-churners over
score calls (96,000 users next six months
per month)
Contacted users Users remaining on
Non- taking up offer network after 6 months
churners 910,000 (25,920 users) (21,566 users)
70,080
18,921
18,921
1089
1,400
Churners 5,599
6,999
or potential 25,920
churners 90,000
over next
six months Customers who
churn despite
loyalty offer
Targeting Process Contact Offer Process Realized Save Rate
• Predictive churn model • RPC rate of ~30% • Save rate of 20% for churners
• Call center support • Uptake rate of ~90%
~100,000 users/month • Assumes equal RPC and Uptake
• 1.5% monthly churn in base for churners and non-churners
• 4.5% monthly churn in list
In almost all outbound loyalty programs, the majority of users taking up a

retention offer are not actually churners, limiting total returns.
Page 43
Churn — Channel Economics Illustrative
Outbound Inbound retention Winback

Assumptions: C$45 ARPU, saved users remain on network for 12 months, C$5.00 per contact outbound, C$4.00 inbound
• Targeting: • Targeting: • Targeting:

- 27% churners over 6 months - 60% of callers are churners - 100% of those called are
in lists • Offer Uptake and Save Rate: churners
• Offer Uptake Rate: - 100% for non-churners • Offer Uptake and Save Rate:
- 90% - 25% for churners - 5%
• Save Rate: • Cost of Contact: • Cost of Contact:
- 20% - $0.00 per contact - $6.70 per contact
• Cost of Contact:
- $6.70 per contact
• Give away revenue • Give away revenue • Give away revenue

breakeven: $2.31, breakeven: $12.50, breakeven: $33.50,
5% of ARPU 28% of ARPU 74% of ARPU
Move away from migration Room to enrich offers Increase investment

depending on observed
offers to feature offers depending on results results for targeted winback
segments
Notes: Monthly revenue saved is multiplied by 9 months (since churners would leave in an average of 3 months); Give away cost lasts for 12
months, 3 months for churners who accept the offer.
Inbound and winback efforts, however, can show substantialy higher returns due to
their inherent targeting benefits. By shifting resources to the inbound channel, we
improved in year EBITDA by C$6M.
Page 44
Test Environment — Description
Definition: Launch inbound and outbound campaigns on a small scale in a clean, single offer environment with
precisely controlled execution across multiple channels, using CDR level data for rapid return tracking
for each variation tested.
Typical Process Area of Impact Test Environment

• Due to small scale and cross functional
• Due to large scale approval and
production process is lengthy team offers are launched very quickly
• Due to single offer environment and access
• Reading results from bills delays Time to Market to CDR level data results are available in 2 -
campaign performance evaluation by 2
- 3 months 3 weeks
• Easy to hit extremes of either rich offer • As a result of the small scale and the
with high risk of reprice, or less testing of various offers the reprice risk is
attractive offer with high marketing Risk of Reprice limited and is known in advance
cost per take-up
• Usually not at all or not properly • Hypotheses driven design improves returns
measured. • Correctly measured returns are available
very quickly
• Lack of hypothesis testing at offer Expected Returns • Sensitivity and elasticity information is also
design usually results in neutral or
negative return available
• Complete cycle of hypothesis generation,

• Overlapping campaigns
• Improperly defined control groups testing, tracking, feedback prior to broad
• Improper return calculation
Customer Management based launch
• Limited feedback from tracking or CS Process • Knowledge handover from Diamond-
into new offer hypotheses Cluster through on the job training
The test environment is operated by a cross-functional team to ensure that test

initiatives can be launched on a small scale with short turn around and proper return
tracking.
Page 45
Test Environment — Benefits
All Departments Realized Immediate Benefits...
• Marketing benefits from increased creativity and stronger business cases in low risk environment
• Finance benefits from selecting only the most profitable campaigns from those tested, and avoiding any net-
negative campaigns
• Database marketing benefits from easier environment to track results
• Customer care benefits from fewer marketing initiatives for non-test customer care advocates, and an
opportunity to provide feedback on what works and what does not
…and in the Long Term, the Product Development Process Flow Was Improved
GENERATE HYPOTHESES TEST HYPOTHESES ANALYZE RESULTS

• Develop detailed hypotheses on • Design specific test to confirm • Track churn, migration, and usage
how specific products offered initial hypotheses impacts to determine overall
through specific channels to - Vary offer and channel as needed impact on profitability
targeted subscriber groups will to gain significant results
impact profitability
- Establish a control group of
- How channel of communication statistically significant size, and
affects take-up rate isolate target and control group
- How certain offers impact post- from all other campaigns
campaign behavior (churn,
migration, usage)
By creating a test environment, DiamondCluster built a testing mentality

within the organization which improved the product development process.
Page 46
Test Environment — Improved Targeting
Daily Tracking Weekly Tracking
342 users taking Afterhours at Free
Take-Up Date: 342 users taking Afterhours at Free
April 20, 2000
700 400
Seonds / user / day (indexed based on

350
600
300
seconds / user / day
500
before avg.)
250
evening
400
200 peak
300 weekend
150
200
100
100 50
0 0
-3 -2 -1 0 1 2 3 4 5 6 7 8 9
0
6
-6
18
24
30
36
48
54
60
66
12
42
4
2
-18
-2
-1
Week Relative to Take-Up

Date relative to take-up date Weekend 183%
evening peak weekend Evening 168%
Peak -4%
Notes: Graph shows daily variation of 342 users who took AH free Notes: Graph shows daily variation of 342 users who took AH free
All users shifted to same relative take-up day (day zero) All users shifted to same relative take-up day (day zero)
Graph shows usage in terms of seconds Graph shows usage indexed to before avg. (i.e. avg. of weeks -3 to -1 = 100)
In this example, a tested free off-peak product, targeted at high breakage

users, led to weekly usage stim of greater than 100% with no reprice.
Page 47
Test Environment — Tracking Results
Usage Churn Migration
% Stim % Churn % Migration Downsell

Attempts Control Down
30% Control Upsell
Attempts 2.0% 8.0% Control Up
Control
7.0%
22%
6.0%
20%
5.0%
1.0% 4.0%
10% 3.0%
2.0%
2%
1.0%
0% 0.0% 0.0%
Hardware Upgrade Hardware Upgrade Hardware Upgrade
439
# 3008
(62 take-up) # 439 3008 # SAME AS CHURN
Notes: Usage stim is avg. of 29 days after take-up compared to 29 days before take-up. Includes all usage. Both churn and migration compare
all attempted contacts to a control group. Migration chart includes migration events past the CS induced migration.
In order to establish complete and accurate metrics, tracking

incorporates usage, churn, and migration impacts.
Page 48
Agenda
Introduction
Background on CVM

• Background
• Prepaid
• Postpaid
Page 49
CVM Project Phasing and Resources
Resources:
Project Scope/Deliverables:
Phase 1A • Approximately 4-6 persons (DCI)
• Review and analyze sample client data feeds • Approximately 2 client
Initial 3 resources from
• Illustrate key existing base trends based on sample
Diagnostic Month department/division under study
• Provide detailed assessment of time/budget to build
& Engage-
productionalized Cluster analysis tool, provide ongoing
Phase 1B ment base analysis and marketing support
Testing • Relevant examples of analysis tool output from other
projects
Project Scope/Deliverables: Resources:

• 4-6 persons (DCI)
• Develop analysis engine using client real
• Approximately 4 client team mambers from
time feeds marketing, sales, finance, IT and CS
Phase 2: • Use engine to create new finance 3-5
Proof of revenue/profitability reports Month
Concept for • Customer analysis to understand user Engage-
behavior, micro offer opportunities with ment
Tool expected benefits for implementation
• Test offer implementation
• Productionalized analysis engine
Project Scope/Deliverables: Resources:

• Integrate Cluster analysis engine with • 4-6 persons
campaign management/tracking tools, rules • 6+ fully dedicated internal resources 6-12
based recommendation engine from marketing, sales, finance, IT and
Phase 3: CS Month
Implementation • Implement series of targeted offers Engage-
previously identified ment
• Track results and refine offers
• Provide detailed financial reports on value
created
A pilot consists of 3 months to construct an initial diagnostic and testing.
Page 50
Project Team Structure
Project Design/Management Office

• Support • Management • Coordination
• Management • Design • Education
Other Functions/
Marketing Team Work Steps
Departments
• Data modelling Infrastructure IT

• Database marketing
Data Feeds/
Construction of Variables IT/CS/Systems
• Customer loyalty
• Turnover prevention Functions Using Variables/Reports Finance

• Other functions
Offer Design/Implementation CS/Systems
Tracking CS/Finance
Feedback and Internal

improvement project
loops dependencies
CVM can only be successful through cross-department planning and collaboration,

with marketing in the coordinating role.
Page 51

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CVM Introduction

CVM Case Studies from Bell Mobility

– Work on the Sprint PCS case

• CVM helps corporations develop tailored products and services to their

• Specifically, CVM generates or preserves value through:

• Improve profitability by • Retain customers by improving

Approach • Hypothesis, data-driven • Integrated, comprehensive

• Capture detailed customer data; • Channel integration to offer a

Metric • Customer profitability • Customer retention

Customer Expectations • Exceed on customer value • Exceed on customer service

• Direct customer to most • Streamline and improve

CVM is focusing on creating profitable customer relationship.

CVM Case Studies from Bell Mobility

• Current CVM initiatives:

Telecom New Zealand

Before CVM approach After CVM Approach

Price Additional potential revenue/ consumer Price Uncaptured consumer surplus

Rate Plan 1 Market

Quantity Micro-Offers to Existing Base Quantity

The result of a successful CVM approach is the shifting out of the

Customer Customer Offer Results Tracking/

Through micro-targeted offers, DiamondCluster has used subscriber-

Industry Growth Price Declines Product Launches

1998 1999 1999 2000

Source: Merril Lynch. Source: Wireless week, Washington D.C.

The mobile telecom industry is unique in its rate of growth, price

• Frequent separation of purchaser and consumer

purchaser and consumer

CVM Case Studies from Bell Mobility

Market Share (Subs) MoU Postpaid MoU

Notes: All 2001 figures are estimates. Source: company publications.

Bell Mobility CVM Approach

• Market growth focused in pre-paid segment (BM • Phase I: Prepaid

• No analysis of migration patterns • Phase III: Enterprise

Evaluation of the competitive positioning of Bell Mobility led to

CVM Case Studies from Bell Mobility

Background & Issues CVM Analysis Strategy/Results

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9

Our modelling of customer economics is the foundation of our CVM

Customer over Lifetime Present Value

Notes: Assumes no pre-to-post upsell.

Notes: Assumes no 2nd headset subsidy over customer life.

000s $M 52% breakeven cannibalisation rate, revenue

400 Lifetime Revenues for New Users

200 February actual average 468 per day

Minutes of Use Revenue

Cumulative Net ARPU

150 Top 50% are

Note: Net revenue includes all contra elements.

Lifetime EBITDA per user

Average MOU per user

…As a result migrating high users to postpaid is expensive, representing

Before After hours feature After After hours feature

Day proxy dMoU Free proxy dMoU Nights proxy dMoU

-17 -14 -11 -8 -5 -2 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70

Day Relative to Take-up (low users)

CVM Case Studies from Bell Mobility

• Aggregated over time • Individual call records, account

• Weekly, monthly • Twice a day

• Accessible by any user through • 10+ times more data

Usage and Account Historical

DiamondCluster initially constructed the CVM datamart as proof of concept, then

• High breakage users USAGE • Usage trends precede