Carriers Developing Churn-Reduction Plans

Wireless carriers have already switched marketing gears to reduce LNP's impact on churn, and additional changes — with mixed benefits for indirect retailers — are likely.

In launching preemptive strikes before wireless LNP must be implemented, carriers are more aggressively promoting one- and two-year contracts to new and renewing subscribers, analysts said. "The most exciting promotions are for two-year contracts, such as getting a camera phone for less than $200 or getting a free phone plus a $50 to $100 rebate, credit or gift certificate," said Albert Lin of American Technology Research. Cingular, T-Mobile and AT&T stepped-up two-year contract promotions in recent months, he said. Verizon started late last year to aggressively market two-year contracts, he added.

Going into 2002, Lin noted, the number of U.S. subscribers under contract reached their lowest levels, down to about 30 or 40 percent of the subscriber base, and carriers are fighting to get those percentages up. Many consumers opted against contracts because service prices were falling so quickly, he contended. "They chose to jump to a new less expensive plan in six months rather than take the $100 to $150 [handset] subsidy tied to a one-year contract [that locked in rates]," he said.

Also to reduce their subscribers' proclivity to churn, said analyst Mark Lowenstein of Mobile Ecosystem, carriers have begun "offering existing customers equivalent deals on phones as [if they were] new customers." Lin also expects such equivalency in carriers' direct-marketing efforts.

For his part, Yankee Group analyst Adam Guy also foresees "more aggressive direct marketing of discounted handsets by carriers." Carriers have already done so on occasion, he said, "but sometimes only if you ask and say you're ready to switch."

In their efforts to hold churn in check, carriers might also increase their commissions to dealers who sell new phones to renewing subscribers, said Yankee analyst John Jackson and Chris Cagle, marketing VP at Wireless Retail, which operates 1,000 wireless stores and kiosks.

"For years," Cagle said, "we've encouraged carriers to offer competitive renewal programs to the indirect channel, and only one [Cingular] does." Wireless LNP might encourage Cingular's competitors to follow suit, he said.

Carriers might even improve their residual programs or expand them to more dealers in an effort to control churn, some dealers speculated. "Residuals offer a degree of protection against the abuse of local number portability," said Wireless Retail's Cagle, but other dealers claimed residuals don't offset a commission program's incentive to churn.

"Residuals generate a couple of bucks per month, usually for the lifetime of the subscriber," one dealer said.

"Residual programs are few and far between," the dealer added, "unless you're exclusive with one carrier or exclusive plus one."

Potentially, dealers' commissions could decline on a per-subscriber basis as churn rises in an LNP environment, some dealers noted. "Retailers are measured by ARPU (average revenue per subscriber), new additions, and churn," Cagle said. "Will contracts become less profitable with higher churn?"

Shelly Fuller, wireless director for Seattle's Car Toys chain, also saw the potential. "If the cost per gross acquisition goes up for carriers, it could directly affect a retailer's commission structure," she said. All things considered, however, she expects LNP to be a net positive for dealers.