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January 20, 2011

A Challenge for T-Mobile: Reducing Sky-High Customer Churn Rates

By Tracey E. Schelmetic, TMCnet Contributor

Ever since wireless number portability became the law of the land about seven years ago, wireless companies have been struggling with a big problem: customer retention. Once, customers stayed with carriers they weren't entirely pleased with in order to avoid changing their phone numbers. Now that customers can wander at will without penalty at the end of their contract periods, wireless companies have had to work harder to keep their customers.

T-Mobile (News - Alert) USA, the fourth largest U.S. wireless provider, has been feeling the pain, according to Business Insider. Solving unacceptable customer churn has been identified as one of the carrier's biggest challenges for the next few years, executives said at a media breakfast this morning.

Each month, more than two percent of T-Mobile's subscribers who were on long-term contracts leave the service. That translates to about 25 percent customer churn each year. It's also double the churn rates of T-Mobile competitors AT&T and Verizon (News - Alert) Wireless.

High customer churn costs a great deal of money. As the old mantra goes, it's far cheaper to keep a customer than it is to win a new one. So, says Business Insider, if T-Mobile is going to become more successful and more profitable, it's going to have to tackle its churn problem. The company's executive layer has been very forthcoming about this.

But it's easier said than done.

As some first steps, T-Mobile has changed leadership and started to tie executive compensation to churn. It is using more help from its parent company, Deutsche Telekom. It also a plan to deal with the fact that it doesn't offer customers the iconic Apple (News - Alert) iPhone.

The goal, apparently, is to get close to 2 percent churn in 2011 and less than 1.8 percent in 2012, which sounds very ambitious.

According to Fierce Wireless, T-Mobile CEO Philipp Humm has unveiled a comprehensive turnaround plan he said will revitalize the company. In addition to reducing churn, goals include growing revenues, pursuing new markets (such as the enterprise market) and considering strategic alternatives such as network sharing, partnerships and even spectrum leasing.

And the fact that the company doesn't offer the iPhone? Humm credits at least 10 percent of T-Mobile's churn to this: customers defecting to AT&T (and now Verizon) in search of their coveted iPhone. Hamm has said the company plans to offset their iPhone-less state by launching a lot more Android handsets. As Google's (News - Alert) Android platform becomes more popular and continues to close the gap between itself and the iPhone in terms of sales and penetration, T-Mobile's Android-heavy future plans might help close the churn gap.

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Tracey Schelmetic is a contributing editor for TMCnet. To read more of Tracey's articles, please visit her columnist page.

Edited by Janice McDuffee

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