1. Using Big Data Analytics To Manage Customer Churn and Loyalty KPIs
Chantel Cary, Analyst, Telecoms Operations and IT IT

2. Contents Key messages Key telco KPIs by region
Addressing high churn and low ARPU is a global issue for telcos
Big-data and analytics use cases for marketing, retention, and growth
Industry case study
Appendix

3. Key messages
The competitive market conditions faced by telcos are conducive to high customer churn and decreased customer loyalty.
Telcos have collected and stored customer data for years, but until recently there has been little investment in using this data. Though interest has increased in the last few years, only 20% of telcos have fully deployed analytics in their organization.
Poor management of customer-centric KPIs has resulted in a vicious cycle of customer churn, but when leveraged properly, big-data analytics can be used to support a wide range of business initiatives, and can be used to improve churn and loyalty metrics, as well as ARPU and NPS.
Telcos must use big data to launch initiatives that offer value to the customer while providing customers with a personalized experience.

4. Key telco KPIs by region

5. Telcos must manage customer-centric KPIs
88% of Fortune 500 companies from 1955 are no longer in business today, as a result of fast-changing market conditions across multiple industries.
Telcos, which were once deeply ingrained in the everyday lives of customers, are at risk of being edged out by competing and over-the-top services.
Telcos must adapt to the needs and expectations of their customers to remain competitive.
To manage this, telcos must focus on customer-centric KPIs such as churn, ARPU, and SAC to sustain and grow revenue, profits, and subscriptions.

6. Blended average revenue per user (ARPU)
Regions with more postpaid subscriptions have higher ARPU.
Source: Ovum

7. Regions with more prepaid subscriptions are more prone to churn.
Source: Ovum

8. Subscription-acquisition cost (SAC)
Postpaid customers and phone subsidies tend to increase SAC.
Source: Ovum

9. Data accounts for over half of all revenue in North America and APAC.
Data revenues
Data accounts for over half of all revenue in North America and APAC.
Source: Ovum

10. Gross additions
The level of market saturation in mature markets is clear, with high numbers of gross additions appearing only in developing markets
Source: Ovum

11. Addressing high churn and low ARPU is a global issue for telcos

12. There is a direct correlation between churn and ARPU…
Note: Average over 1Q13–1Q15.
Low churn is a product of high ARPU.
Source: Ovum

13. … and the cost of replacing lost customers is high
Subscription-acquisition cost (SAC) by region
SAC is highest in mature markets where penetration and competition is high.
By focusing on retaining customers rather than acquiring new ones, telcos can invest revenue in creating new and innovative services.
Note: Average over 1Q13–1Q15.
Higher APRU is offset by higher SAC and a longer ROI interval.
Source: Ovum

14. On average, it takes 8.5 months for telcos to recoup subscription-acquisition costs
Telcos must reduce the breakeven time for customers by
increasing ARPU
extending the average customer lifetime
decreasing SAC by making existing customers brand promoters.
Based on ARPU alone, it will take telcos 3.5–20 months to break even on SAC, but the average customer lifetime is currently 2 years. Telcos need to manage churn rates and encourage spend to ensure a profitable customer.
Source: Ovum

15. What causes customers to churn?
Customers churn to obtain better network performance and better treatment from their telco. Big-data analytics can be used to monitor network, operational, marketing, and care data to improve performance.
Source: Ovum Consumer Insights survey
Source: Ovum

16. Telcos need to break the vicious cycle and negative impacts of high churn
Negative cycle
Positive cycle
High churn
Low ARPU
High SAC
Decreased revenue
Minimal innovation
Loyalty & high retention rates
High ARPU and CLV
Low SRC and SACs
Enhanced revenue
Investment in innovation
High churn, low ARPU, and high SACs mean less revenue with which to create innovative services, leading to more churn.
Telcos must prioritize management of ARPU and churn or get stuck in a negative cycle.
By focusing on ARPU and churn, telcos will create loyal customers and brand promoters, enabling them to attract new customers without high acquisition costs.
Source: Ovum

17. Some operators are balancing this better than others
Smart Communications
$2.82 ARPU
6.35% churn
Swisscom
$42.08 ARPU
1% churn
$91 SAC
Source: Ovum

18. Culture and regulatory environment play an important role
Orascom Telecom Algeria
$5.67 ARPU
6.21% churn
82% prepaid
Telus Mobility
$50.35 ARPU
1.28% churn
$ SAC
86% postpaid
Telcos with more prepaid customers have a greater propensity for high churn.
In postpaid markets, SAC is higher, due to handset leasing.
Regions with a large youth population are more prone to churn, since younger users churn more frequently to get the best deals on the market.
Leveraging big-data analytics enables telcos to manage ARPU and churn while appealing to cultural and customer preferences.
Source: Ovum

19. Big-data and analytics use cases for marketing, retention, and growth

20. Telcos must turn big data into smart data
Telcos have spent significant time and money building data lakes to store customer data.
There has been very little effort from telcos to use the stored data, however.
Telcos have an opportunity to leverage this robust data to not only get a 360° view of their customers but to influence KPIs and improve customer loyalty.
Telco
ARPU
NPS
Revenue
Market share
Churn
SAC
Source: Ovum

21. Telcos have been slow to implement change
Has your organization deployed analytics in any of the below areas?
More than 70% of telcos have planned to deploy analytics to create targeted marketing and personalized services, but under 20% have been able to fully do so.
Source: Ovum

22. Big-data analytics help telcos deliver a number of use cases across the business
At a network level, Internet activity data can be used to optimize network and service performance, but much of the power that Internet activity data can deliver is in supporting customers and marketing use cases (B2C, B2B, and B2B2C).
The differentiating feature of analytics for DNS data is that CSPs obtain access to all customer and search activity data in real time, enabling them to react in real time in a very personalized way. For example, using in-browser messaging via a floating watermark enables CSPs to provide a realtime and interactive response to customers.
Telcos can use analytics to address specific use cases to improve technical and process issues and, importantly, help them monetize services that they already provide to customers.
Source: Ovum

23. Big-data analytics deployments
Increase ARPU
Dynamic pricing
Shared data plans
Real-time marketing campaign
Drive adoption of new technologies
Churn management
Recharge and top-ups
Self care
Support QoE requirement
Rollover data
Acquire customers
Application plans
Happy-hour plans
Personalized plans
Zero-rated services
By leveraging existing resources, telcos can drive KPIs without increasing capex.
Source: Ovum

24. T-Mobile’s application of big-data analytics to reduce customer churn
Industry case study
T-Mobile’s application of big-data analytics to reduce customer churn

25. T-Mobile leveraged big-data analytics to drive its “Un-Carrier” strategy
Analytics investment across departments
Created a data lake and aggregated data
Deployed an analytics platform on top of data lake for a 360° view of the customer
Encouraged customers to share its social-media pages
All customer data was shared across the business for department-specific programs
Source: Ovum

26. T-Mobile repurposed the same data for new uses across different departments of the organization
Customer view
360-degree, internal and external (e.g. social media) view of the customer for customer service, technical support, and marketing
Products and services
Insight into the performance of products and services
Customer experience
Insight into the touch points by which customers are engaging with the company
Business operations
Insight into revenue-management systems
Supply chain
Purchase-order, shipment, and logistics insight
Network
Insight into network quality and coverage
Source: Ovum

27. “Un-Carrier” enabled T-Mobile to create new offers from existing internal resources
T-Mobile Un-Carrier initiatives:
Simple Choice
Jump
Simple Global
ETF Payoff
Test Drive
Music Freedom
WiFi Unleashed
Data Stash
Un-Carrier for Business
Source: T-Mobile

28. T-Mobile used a “tribal” approach to manage customer churn
Using operational and social-media analytics, T-Mobile incorporates a subscriber’s influence into a customer’s net present value (NPV).
This changes the customer-management dynamic:
For example, a customer with very little influence who spends $200 a month might have a lower NPV than a customer who spends $75 a month and has a high influence.
The customer with greater influence is likely to use social media to broadcast their dissatisfaction and encourage their followers to churn with them.
Source: T-Mobile

29. As a result, T-Mobile has seen a drastic decline in churn rates since launching “Un-Carrier” in 2013.
Source: Ovum

30. T-Mobile’s gross subscription additions have risen significantly compared with competitors
US gross subscription additions by operator, 4Q10–4Q14
Un-Carrier 1.0 launched
Source: Ovum

31. T-Mobile still has a long way to go
T-Mobile must increase its ARPU, which has been steadily declining over the years.
T-Mobile will need to evaluate reducing subsidy promotions (such as ETF payoff) as part of efforts to improve ARPU.
Expanding third-party partnerships for Music Freedom and establishing similar offerings for other services will increase ARPU.
ARPU
SAC
T-Mobile must lower its SAC, which is disproportionately high.
By refocusing efforts on customer loyalty and creating brand promoters, T-Mobile can begin to reduce churn.

32. Appendix Further reading Author Ovum Consulting
Using Big Data Analytics for Next-Generation Telecoms Operations, IT (April )
The Data Experience: The New Frontier for Operators, IT (March 2015)
New Methods for CSPs to Engage and Monetize, IT (July 2014)
T-Mobile's Un-carrier Strategy: Assessing the Impact, TE (April 2015)
Author
Chantel Cary, Analyst, Telecoms Operations and IT
Ovum Consulting
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