Communication service providers (CSPs) love their subscribers madly — why wouldn’t they?
It costs CSPs (also known as telecoms) a bundle to acquire new subscribers. To convince people to sign up, American CSPs pay as much as $315 per new subscriber — one of the most expensive industries when it comes to customer acquisition costs (CAC). To justify the CAC, CSPs try to extract as much lifetime value (LTV), the amount of revenue generated by subscribers over the course of their relationship with the CSP, as possible. A healthy LTV-to-CAC ratio is greater than 3-to-1. Lower than that, and the CSP is paying too much to attract subscribers.
If a subscriber’s average revenue per user (ARPU) is $76 per month — using figures from Charter Communications, one of America’s largest telecommunications and mass media companies — it will take more than a year of subscription payments to achieve the desired LTV-to-CAC ratio.
CSPs have to grab the highest ARPU as quickly as possible before they risk losing the subscriber. They bundle lots of services together to offer attractive and profitable packages for which people will agree to pay extra. CSPs that are able to offer “triple play” bundles — voice, video and data — can entice subscribers to part with $100 or even more per month. For example, cable company Xfinity’s standard triple-play bundle costs $115 per month, and if you want more channels and speed, the price can escalate to $160.
Some major CSPs, like international giant Liberty Global, have gone beyond the baseball metaphor and have introduced a “quadruple play” that adds mobility to their triple-play package by supporting dual-mode mobile-Wi-Fi phones that automatically switch between the mobile network and the home Wi-Fi network. CSPs are forever working on marketing schemes to raise that ARPU.
Keeping Them Satisfied
Attracting new subscribers is, indeed, an art form, but holding onto them demands no less attention. Once you have them, you want to keep them. Like shepherds who carefully monitor every sheep in the flock, CSPs invest a lot of time and money to make sure their precious subscribers don’t leave the fold and keep paying that monthly fee. They come up with bundling and fee formulas that lock in subscribers for a year or even two, but this relatively short-term strategy doesn’t necessarily keep subscribers in the fold long enough to cover the costs of acquiring them.
Churn: It’s Not Just For Butter
Churn rate measures the percentage of total subscribers who cancel their service in a given period of time. Data from 36 mobile CSPs across 24 countries shows annual churn rates can range anywhere from 14% to 75%.
A typical 2.5% monthly churn rate results in an average subscriber lifetime of about 40 months. Given an ARPU of $75 and subtracting $40 a month to provide the services leaves sufficient cash flow to cover the CAC —with still enough left over to improve the balance sheet or grow the business. But subscribers can be as slippery as warm butter. Heavy subscriber churn creates financial mayhem with CSPs that take an expensive hit, sometimes not even covering their CAC.
Killer App For CSPs
The telecom sector is changing rapidly. Traditional technologies like wired telephone and TV once dominated the telecommunications universe, but wireless mobile and internet technologies, especially, are now leading the way.
It is no secret that we are currently in the throes of a major shift toward home internet usage. Accelerated by the coronavirus pandemic but inevitable anyway, the trend is toward increased working, learning and playing from home. While the typical internet-connected home boasted five connected devices only two years ago, that number has more than doubled and will soon explode.
Internet-dependent apps like Zoom and YouTube are replacing the telephone and TV for many people. We are listening to old Jim Morrison tunes and watching baseball games played in empty stadiums via the internet. The kids are “in school” but attending from home. CSPs are rapidly upgrading their internet infrastructure to make sure they can offer adequate internet service to millions of households that suddenly want to connect to everything. In fact, the quality of internet service is becoming a significant differentiator in the CSP competition for subscribers.
CSPs have a long history and expertise in delivering phone service. They know how many phone calls you make in a month, to where, how long you stay “on the line” and a whole lot more. They have a microscopic understanding of how you react to tariffs and various service packages. But when it comes to how you use the internet, they don’t know very much at all.
In fact, they can’t even see what connected devices are operating in a home. They struggle with knowing how much bandwidth each home consumes and, especially, if homes are getting good service. Is home X enjoying the internet service? Is home Y suffering day in, day out, unable to get a reasonable Zoom videoconference and agonizing over a choppy, buffered Netflix movie? A CSP wouldn’t know.
CSPs lack the capability to measure quality of experience (QoE). They cannot detect increasing frustration levels as subscribers reach their churning point. The traditional correlation of subscriber satisfaction with the number of technical support calls doesn’t work in the highly competitive internet era. Suddenly, without making even one technical support call, subscribers take their business — and their ARPU — to a competitor. Without the technologies and tools to understand the ongoing subscriber experience, CSPs can’t even see it coming.
As Jim Morrison crooned, “Don’t you love her madly? Don’t you love her as she’s walking out the door?”