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The dynamics of carrier loyalty are shifting

Posted by legion125, in Author: Jeff Foster 30 March 2012 · 3,063 views

The dynamics of carrier loyalty are shifting by Jeff Foster
Sprint 4G Rollout Updates

Friday, March 30, 2012 - 1:09 PM MDT


Prior to the rise of smartphones, carrier loyalty was tied more to network coverage – and for many it still is.  Consumers don’t want to worry about signal strength or proximity to a cellular tower in order to place a call.  At their most basic level, phones have to work for their primary purpose.  In the early days of cellular, there wasn’t much difference between most voice-only handsets.  

Of course there were fashion and size considerations, or interest in devices that offered a wider range of compatible accessories, but until six to eight years ago, phones were just phones.  Then along came the smartphone, and with it more device styles and functions and a greater range of capabilities.

Then there are those one night stand smartphoners...

Smartphone users are among the least likely to stick with their carrier, and 31 percent of U.S. consumers are ready to switch wireless carriers for better or improved services.  Even with the rising cost of early termination fees, carrier loyalty is fragile at best, with only 17 percent of consumers claiming their current network provider is the only carrier they will continue to use.

That startling decline in loyalty is causing wireless companies to rethink the way they do business.  In 2011, the average length of relationships between carriers and their under-contract customers fell to an all-time low of 48 months.  The trend has been building for a few years and what’s surprising is how quickly it accelerated. In 2010, the average customer-carrier relationship was 59 months -- nearly a full year longer.

The biggest decline came among smaller cell phone companies, but large carriers like Verizon, AT&T and Sprint didn't fare much better. Their average relationships with customers under contract lasted just 51 months.  If customers are going to cut and run frequently, carriers will need to rethink their pricing models -- particularly when it comes to expensive smartphones.

I'll glad pay you Tuesday, for that high priced smartphone today...

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Is that Sprint yellow, or is it just me?
Carriers have been encouraging customers to upgrade to smartphones because the devices bring in a new revenue stream. Most carriers then charge smartphone customers a premium for data usage, with plans averaging about $25 per month.  But what carriers didn't anticipate were the incredible costs of keeping smartphone customers satisfied.

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. Plus, smartphone customers use data, and a lot of it, requiring wireless companies to spend tens of billions of dollars each year improving their 3G network capacity and building out their 4G networks.

Meanwhile, average revenue per smartphone user is actually declining. As data use grows, people are talking on their phones less. The average consumer used just 638 voice minutes per month in 2011, down from 720 minutes in 2010. Customers are cutting back their voice plans, sending carriers' average revenue per smartphone user down to $83 per month last year. That's a drop from $86 in 2010 and $93 from 2009.

How much longer can the industry afford to subsidize smartphones and not receive a loyalty benefit back?

Less loyalty, growing subsidies, higher infrastructure costs and declining revenues have created an unsustainable dynamic for carriers. Profit margins are falling, and analysts expect the trend to get worse.

That means the business model is changing and carriers have few options.  First, they can increase prices on their phones. 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.

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Another tactic is for them to pressure handset manufacturers to reduce device costs. Some may bargain, but the maker of the single most popular smartphone -- Apple's iPhone -- is no pushover.  Carriers are even trying to retain customers by offering incentives, such as device buyback programs and are considering leasing plans.  Finally, cell phone companies may switch to the "bring your own device" model that is popular overseas.

North American carriers have embraced the subsidy model for decades for two reasons: incompatible technologies presented steep obstacles to switching, and the subsidy model seemed to build customer loyalty.

"The mobile industry has reached a point where the economics of the current subsidy model associated with acquiring new and upgrading existing customers to costly smartphones have become increasingly difficult to sustain," said Pierre-Alain Sur, PwC's global communications industry leader.

Now, the whole industry is migrating to the 4G-LTE standard. With loyalty going out the window, carriers may drop subsidies and contracts altogether. Whichever option carriers choose, they will have to act fast, Sur thinks.

"They are going to have to determine what's going to be the business model of the future," he said. "Carriers are at an inflection point.".


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http://money.cnn.com...?source=cnn_bin
http://gigaom.com/20...ty-is-fleeting/
http://news.cnet.com.../?tag=cnetRiver




My loyalty has been based on cost, which of late is no longer as much of a difference as it once was. With the added "premium data" charges that many (myself included) don't truly enjoy except via WiFi and the paltry 4G network coverage in my home/business area, the shift in the discount structure and overall family shared plan pricing - the massive delta between my Sprint bill and what a similar plan would be on Verizon is now only a few dollars.

With 2 heavy data users, 1 basically only email and maps, and 1 non-smart phone on my plan, I'm paying $30 extra a month now for ... well for what I'm not sure anymore. Unlimited for me is very limited. I average around 6GB on WIFI and under 1GB on network because of limited coverage at home and at my office (roaming in the break room? Really????)

The coverage maps provided by Sprint are so weak that, even though I'm apparently within 2 miles of a 4G tower (guessing based on the coverage gradations) that I still need an Airave in my home to get any signal at all. I left ATT for exactly this reason and I feel stupid for not listening to my neighbors (all loving their Verizon coverage) because Sprint had the phone I'd been wanting - the amazing Samsung Katana.

I'm off contract now on my on line, and will be next year for 2 others. If LTE isn't here (south Orange County) and insanely good - I'm a goner, and my loyalty will be based on what it should be based on - QUALITY SERVICES.
This is a pretty awesome write up, thanks bro!!
I thought since Sprint has done practically a 180 on how it perceives us - the customer in the past year and a half, it made me curious to see how the industry as a whole is fairing. As others have commented, Sprint has priced itself pretty close to being a "premium" carrier and depending where you live a determination of the type of coverage you receive compared to what you now pay is left to you.

Sprint isn't doing much IMO in the terms of retention's. I don't mean it has to give the farm away, but Sprint could decrease churn with a few incentives and getting rid of the "take it or leave it" approach you see now. Now that the 1st quarter is ending, I'll be curious to see how the figures look when they report in May.
Nice writeup Jeff. I consider myself a very loyal customer, but loyalty goes both ways. I still shop at a small hardware store vs. the big retailers because the small hardware store returns my loyalty. I am still loyal to Sprint, I was with them for 10+ years, but the loyalty has to go both ways. The network in my area was broken, data was crawling. I was met with two choices, downgrade to a (gasp) dumb phone until network vision came through or go to a carrier who had reinvested in their network and could offer me smartphone functionality. It killed me to leave Sprint, but I was addicted to my smartphone. Now it is up to Verizon to win over my loyalty or I will most likely go back to sprint for another 10+ years when my contract is up. (Verizon is currently doing an absolutely horrible job of inspiring any loyalty in me)
Thanks Scott. I feel the same way in some respects. Loyalty is earned and it goes both ways. We are more of a commodity to Sprint since it must feel confident enough in the iPhone deal that it will draw in huge numbers of new customers. So I assume they feel they can lose a segment that has been with them for a while and still gain in numbers.
nice write up, enjoyed reading it on my dinner break :)

Nice writeup Jeff. I consider myself a very loyal customer, but loyalty goes both ways. I still shop at a small hardware store vs. the big retailers because the small hardware store returns my loyalty. I am still loyal to Sprint, I was with them for 10+ years, but the loyalty has to go both ways. The network in my area was broken, data was crawling. I was met with two choices, downgrade to a (gasp) dumb phone until network vision came through or go to a carrier who had reinvested in their network and could offer me smartphone functionality. It killed me to leave Sprint, but I was addicted to my smartphone. Now it is up to Verizon to win over my loyalty or I will most likely go back to sprint for another 10+ years when my contract is up. (Verizon is currently doing an absolutely horrible job of inspiring any loyalty in me)


Loyalty does go both ways and I think thats why I am still with sprint after 10+ years myself. I can only speak for myself when I say this but customer service is more important to me than what I pay in monthly service. Everytime I look at att or verizon I always get a little sticker shock but in reality I always ask myself if they will treat me the same way sprint did. Now don't get me wrong I have had my issues with sprint but in the end they have always exceeded my expectations every single time. While being with sprint I have also had att and tmobile service and for me personally my experience with them was laughable compared to my experience with sprint, I have never had any service with verizon so I can't speak for them.

I have never been this frustrated with sprint ever with the sudden increase of dropped calls and crappy data but sprint has earned my loyalty over the years, they really have. So at this point I think I am comfortable showing my loyalty to them(all depends on how NV performs of course), mainly with the help of S4GRU, LOL.
I think if Sprint and Verizon were seriously thinking of moving away from subsidies, they'd be introducing SIMs now across the lineup - as-is, Verizon is only using them on LTE and (if the rumors are to be believed) Sprint isn't even going to deploy SIMs at all for now.

Given that, and that at the end of the LTE rollouts none of the Big 4 US carriers will be operating in the same bands with the same standards for 2-3G and 4G (AT&T on UMTS/GSM 850/1900 + LTE 700, Verizon on CDMA 850/1900 + LTE 700, Sprint on CDMA 1900/ESMR + LTE 1900/ESMR/2500, T-Mobile on GSM 1900 + UMTS AWS/1900 + LTE somewhere else) - meaning interoperable phones will be a beast to make (Apple, for example, is having enough fun just trying to get the iPhone to run on the top 3's 3G - they still haven't tackled AWS, even though it's pretty common around the world among newer entrants - and only have LTE running on 700, only used in North America so far, despite being committed to a "world" product) - the subsidy model can't go away anytime soon, even if arguably it should.
Good points, Granted there are still some technological hurdles to be addressed, one thing that I caught was that the FCC is finally looking at making rules so the carries will need to put LTE roaming agreements in place for the future. Of course. AT&T and Verizon are against this. The framework at least is being put in place.