The new churn concern

A federal regulation set to take effect next month may worsen one industry's notoriously bad customer retention rates.

An industry already plagued by customer churn is only expected to see the problem get worse next month when a new federal regulation is scheduled to go into effect to allow customers to keep their phone number when they switch wireless carriers.

The Wireless Telephone Number Portability Act will go into effect Nov. 24 in the nation's major markets, requiring cell phone companies to take a long look at a traditional weakness, according to Michael Lowenstein, managing director of Customer Retention Associates, a customer loyalty consulting firm in Collingswood, N.J.

The average annual customer turnover rate, or churn, for wireless companies reaches 25% to 30%, Lowenstein said. Rather than looking to create customer value, wireless companies have competed on price, he added.

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With little focus on customer service in the first place, the added benefit of bringing a phone number with you will only increase the likelihood of customers switching carriers.

"Damn straight," Lowenstein said. "I don't think it was a strong lever to stay in the first place, and now it's an even bigger reason to pick up your briefcase and go."

Numbers from a recent study from Forrester Research, Cambridge, Mass., back up what most have suspected. According to "Number Portability: A Prescription for Churn," almost 22% of U.S. mobile subscribers would be interested in switching mobile carriers if they could keep their current number, versus 9% if they had to get a new number. The report suggests that this could lead to churn rates above 50% for the most valued customer, the high-revenue subscriber. According to Forrester, customers whose plans cost at least $40 per month would be more than three times as interested in switching operators if they could retain their number. Simply put, high-volume customers will have more contacts to notify when they switch numbers and, come next month, might be more apt to flee.

"Up until now, the number has been the key factor holding many customers 'hostage' to their wireless providers," said Elana Anderson, senior analyst with Forrester. "Starting now, mobile operators need to be a lot smarter about customer retention. It's not just about pricing."

Focus on customers and communities

The key, according to Anderson, is both quality service and service bundling. Wireless providers need to identify at risk customers and be more proactive about getting those customers on the right plan. Finding the right contract will "undoubtedly reflect positively on customers, and will be more productive than the inevitable price wars," Anderson said.

Some carriers have made a greater effort to focus on the customer -- Lowenstein points to BellSouth Corp. and Canada's BellWorld as prime examples. Their efforts have churn rates down to around 12% to 14%, he said. Advertising and features aren't going to be enough in the coming battle for customers.

In the case of T Mobile, Catherine Zeta Jones is nice to look at, but it's difficult to see what T-Mobile offers that Nextel Communications Inc. doesn't, Lowenstein said.

Lowenstein's recommendation is one he has been preaching for years: building community. Carriers that can provide features such as online chat rooms around issues like call waiting, or foster dialogue with customers about what they are looking for, provide a cheap, easy way to interact with customers. Another benefit: Those interactive meeting spots can be just as scientific as focus groups, he said.

Nextel, Reston, Va., may be catching on. The company just announced that its churn rate for the last quarter was at 1.4%, its lowest in six years. Nextel credits its focus on customer service and improved customer touch points, spokeswoman Karen Miller said.

Ironically, the industry's high churn rates were used to fight the wireless portability regulation by demonstrating that consumers were already switching carriers. Now, on top of the new churn worries, the industry is saddled with a regulation expected to cost up to $1 billion to initially make portability a reality across networks, and $500 million a year to support it.

"It's a big headache," Miller said. "There are a lot of system changes and accommodations that need to be made as far as business processes. It's a pretty big deal."

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