I was immediately struck by the headline to David Goldman's CNNMoney story yesterday: "Phone customers ditch their carriers faster than ever."
I was expecting some exciting news about wireless subscribers bailing on their contracts insanely early in order to get their hands on the hottest new smartphones. Turns out the PricewaterhouseCoopers' study Goldman was reporting on showed the average length of time before a customer ditched his/her contract was 48 months. That's not fast at all!
OK, so the headline worked. It piqued my interest. I clicked through to the story. And it's not untrue: The article explained the 48-month period is in fact an all-time low for under-contract customers, down from 59 months in 2010.
But it's misleading. Particularly if you work an industry where it's common knowledge that the average customer replaces his/her phone every 18 months.
Granted, those phone replacers may not be ditching their carriers per se, but if you're replacing your phone, you're going to shop around. And if you're shopping around you're going to look for which carrier offers the best deal on the hottest new devices, making you more likely to ditch your carrier.
Because it's so difficult to battle churn, carriers depend on contracts and subsidized phones to retain customers. "To get smartphones down to the magic price point of $200, carriers pay an average subsidy of $280 for each device -- four times as much as the $70 average subsidy on a feature phone," Goldman writes.
"Plus, smartphone customers are data hogs, requiring wireless companies to spend tens of billions of dollars each year improving their 3G network capacity and building out their 4G networks."
A colleague of mine made an interesting remark when discussing this story. He suggested that people on corporate phone contracts may be pulling the average time spent with a given carrier up, that the number may be lower if corporate contracts were excluded. He may be right.
Regardless of how long it takes before a customer bails on a carrrier, the takeaway from this story is clear: Carriers are in trouble. Goldman explains:
- ARPU for smartphones is going down.
- As data use goes up, people talk less.
- "Less loyalty, growing subsidies, higher infrastructure costs and declining revenues have created an unsustainable dynamic for carriers," he writes.
Potential carrier tactics:
- Increase phone prices. "That's already started to happen. Verizon and AT&T now offer a small selection of 4G phones for more than $200, with some as high as $300," Goldman writes.
- Pressure OEMs to reduce device costs. "Some may bargain, but the maker of the single most popular smartphone -- Apple's iPhone -- is no pushover."
- Seek alternative revenue streams like app store sales or video purchases.
- Provide service for unlocked devices, a model that is popular overseas.
So what can carriers do? Please post your comments below.