GSMA Intelligence Mobile churn trends and customer retention strategies

ANALYSIS

Mobile churn trends and customer

retention strategies
August 2014

© GSMA Intelligence gsmaintelligence.com • info@gsmaintelligence.com • @GSMAi

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Contents

Executive summary............................................................................................................................. 3

Introduction.......................................................................................................................................... 4

Global and regional trends................................................................................................................ 5

Structural changes............................................................................................................................... 8

Customer retention strategies.......................................................................................................... 9

Loyalty programmes.................................................................................................................................. 9
Shared voice and data plans................................................................................................................. 10
Handset subsidies and flexible device upgrade programmes.................................................. 10
Unlimited voice and text.......................................................................................................................... 12
Multiplay offers............................................................................................................................................ 12
Content bundling........................................................................................................................................13
Mobile money...............................................................................................................................................14

Insight: how will operators continue to fight churn?................................................................. 15

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Executive summary

In the developed world, mobile markets have reached saturation point in terms of unique
subscriber penetration and connections growth. The challenge for operators has evolved
from attracting new customers to retaining existing ones. Various components have an
impact on churn and in this report we concentrate on the role of tariffs and services.

According to GSMA Intelligence data, global connections churn has been on a downward
trajectory since 2012. Yet, trends vary by region as churn has been declining in Asia
whereas in Europe and the Americas churn has remained somewhat flat. Our research
shows that of 130 operators who report churn figures on a regular basis, only 13 managed
to reduce total churn on a yearly basis since 2011. Most of these operators are based in
the developing world. The reduction in churn amongst these operators was either due to
structural changes in the market or retention strategies that operators have implemented.

Structural changes involve a number of market-level factors such as seasonality and SIM
registration or deactivation, which often imply a change in mobile operators’ reporting
policies. This has been the case in recent years for operators in countries such as Brazil
or India, while seasonality has created fluctuations in churn in certain countries such as
Russia.

Regarding customer retention strategies, our research shows that the most common
tariffs and services that helped to reduce churn included shared voice and data plans,
flexible device upgrade programmes, unlimited voice and messaging, multi-play bundles,
mobile money, content bundling and customer loyalty programmes.

As the industry is evolving towards data-centric tariffs and services, the biggest challenge
for operators is to engage with consumers and retain their loyalty by delivering more
competitive and innovative value-added services. While understanding consumer needs
remains essential to improve customer retention, other emerging tariffs and services are
likely to carry a long-term impact on churn, including new data roaming tariffs and mobile
authentication services.

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Introduction

Churn represents the proportion of SIM connections that are disconnected by an operator
for various reasons over a given period of time. This metric is expressed monthly and
is calculated by dividing gross disconnections by average total connections at the end
of the period. In this analysis, monthly churn figures reported each quarter have been
averaged to reach an average monthly churn for each year.

Churn is an important measure for demonstrating the ‘stickiness’ of customers to their

mobile providers. Various components have an impact on churn trends, including quality of
service, device availability, pricing, upgrades and subsidies, as well as tariffs and services.

Average contract lengths and device subsidies are the two main variables that have
driven changes in churn levels over the past four years. In our report published in 2011,
we explained that operators in the developed world have been able to accelerate the
migration of prepaid customers to contracts (see Figure 1) and that the popularity of
smartphones has meant that operators have been able to lock-in customers to longer
contracts in exchange for larger handset subsidies. However, since then, the industry
has witnessed a widespread demand for contract-free offers and more flexibility around
device upgrades, while operators have been gradually rationalising and reducing handset
subsidies. These trends mean that the lifetime of the consumer is more challenging to
control and measure, forcing operators to seek innovative ways to retain customers. In
this context, the availability of relevant content and data services play an increasingly
important role.

In this analysis, we focus on how churn has been impacted by the introduction of innovative
tariffs and services, device upgrade programmes and structural market changes.

100%
Contract

80%

60%

40%
Prepaid

20%

0%
2008 2010 2012 2014

Figure 1: Contract and prepaid as % of total connections, developed world

Source: GSMA Intelligence

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Global and regional trends

Mobile connection churn figures demonstrate a shift in trend at the global level in recent
years according to GSMA Intelligence data. As shown in Figure 2, global connection churn
declined between 2012 and 2013, falling from the peak churn rate of 3.70% in 2012 to 3.12%
in 2013. This exhibits a change in connection churn rate pattern from the two years up to
2012, when the rate rose from 3.15% to 3.70%.

Figure 3 illustrates regional churn rates. A very similar trend to the global churn rate is
seen in Asia, where churn peaked at 4.53% in 2012 but has been on a downward trend
since then. In both Europe and the Americas, churn remained flat at the regional level
even though sub-regional trends varied.

5.0% 5.0%

4.5% 4.5%

4.0% 4.0%

3.5% 3.5%

3.0% 3.0%

2.5% 2.5%

2.0% 2.0%

1.5% 1.5%
Americas Europe Asia
1.0% 1.0%
2010 2011 2012 2013 2010 2011 2012 2013

Figure 2: Global monthly churn, annual average Figure 3: Regional monthly churn, annual average
Source: GSMA Intelligence Source: GSMA Intelligence

5.0% 5.0%
Eastern Europe Northern Europe Latin America Northern America
4.5% 4.5%
Southern Europe Western Europe
4.0% 4.0%

3.5% 3.5%

3.0% 3.0%

2.5% 2.5%

2.0% 2.0%

1.5% 1.5%

1.0% 1.0%
2010 2011 2012 2013 2010 2011 2012 2013

Figure 4: Monthly churn, annual average, Europe Figure 5: Monthly churn, annual average, Americas
Source: GSMA Intelligence Source: GSMA Intelligence

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Eastern Europe witnessed the highest level of churn in Europe between 2009-2013, as
shown in Figure 4. Despite the high churn rate at the sub-regional level, our data shows
that operators such as Globul (Telenor) in Bulgaria and MTS (Sistema) in Russia have
managed to reduce churn in Eastern Europe since 2010. Western Europe has the lowest
churn rate in the region whilst the churn rate in Northern Europe has been on a constant
downward trajectory since 2010.

Figure 5 shows a flat churn rate across Northern America with a slight reduction in 2011.
Also, despite the high churn trend in Latin America, our data shows that some operators
in this region have reduced their total or contract churn. For instance Vivo (Telefonica) in
Brazil has managed to reduce contract churn, which it attributed to improving network
quality and promoting innovative services.

Our analysis of the 130 operators who reported churn figures across developed and
developing regions indicates that 13 operators have clearly managed to reduce total
churn on an annual basis since 2011. The majority of these operators (8) are based in the
developing world (as shown in figures 6 and 7).

10%

8%

6%
Armenia, Beeline
Armenia, Orange

4% Turkey, Avea
Russia, MTS
Thailand, AIS
Latvia, Bite
2% Kenya, Safaricom
Malaysia, P1

0%
2011 2012 2013

Figure 6: Monthly churn, annual average, selected operators, developing region

Source: GSMA Intelligence

4%

Denmark, Telia

3%

Norway, Netcom
UK, Vodafone
UK, O2

2%
Finland, Sonera

1%
2011 2012 2013

Figure 7: Monthly churn, annual average, selected operators, developed region

Source: GSMA Intelligence

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Contract and prepaid churn

Our research shows that only 52 operators have reported contract churn on a quarterly
basis since Q1 2010, against 45 operators for prepaid churn. The annual weighted aver-
age of these figures (Figure 8), suggests that contract churn has remained flat between
2010-13 whereas prepaid churn peaked in 2012. The latter trend in prepaid churn is
mainly due to structural changes in mobile markets as explained in the next chapter.

5%

4%

3%

2%

1%

0%
2010 2011 2012 2013

Contract Prepaid

Figure 8: Prepaid and contract monthly churn, annual weighted average, selected operators
Source: GSMA Intelligence

Overall, of the 52 operators that reported contract churn consistently each quarter, only
19 reduced their contract churn level between 2010-13 (Table 1). With regards to pre-
paid churn, of the 45 operators that reported prepaid churn, only 11 managed to reduce
churn each year (Table 2).

2010 2011 2012 2013

T-Mobile (Deutsche Telekom), Austria 1.10% 1.00% 1.00% 0.85%

Vodafone, Germany 1.43% 1.40% 1.36% 1.33%

Cosmote (OTE), Greece 2.18% 2.13% 2.00% 1.90%

Meteor (eircom), Ireland 2.46% 2.42% 2.38% 2.27%

Globe Telecom, Philippines 2.01% 1.84% 1.47% 1.42%

M1, Singapore 1.40% 1.35% 1.28% 1.25%

SingTel, Singapore 0.98% 0.95% 0.90% 0.85%

Orange, Spain 1.85% 1.78% 1.72% 1.70%

Far EasTone, Taiwan 1.71% 1.62% 1.57% 1.57%

AIS, Thailand 2.10% 1.93% 1.80% 1.68%

EE (Deutsche Telekom / Orange), UK 1.53% 1.35% 1.28% 1.20%

Sprint (SoftBank), USA 1.95% 1.86% 1.84% 1.83%

Table 1: Examples of monthly contract churn reduction, 2010-13 annual average, selected operators
Source: GSMA Intelligence
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 GSMA Intelligence Mobile churn trends and customer retention strategies

2010 2011 2012 2013

Cosmote (OTE), Greece 4.01% 2.42% 2.21% 1.83%

Idea Cellular, India 8.70% 10.40% 9.40% 5.18%

Bite (Mid Europa), Latvia 7.79% 8.67% 5.36% 4.96%

Orange, Poland 5.09% 5.29% 5.48% 5.00%

Cosmote (OTE), Romania 4.52% 4.38% 4.21% 3.84%

Movistar (Telefónica), Spain 3.97% 3.75% 3.28% 3.18%

AIS, Thailand 4.53% 4.60% 4.35% 3.15%

O2 (Telefónica), United Kingdom 4.08% 4.77% 4.42% 3.79%

Vodafone, United Kingdom 4.82% 4.90% 4.95% 4.01%

Cincinnati Bell Wireless, USA 6.20% 6.48% 6.18% 5.75%

T-Mobile (Deutsche Telekom), USA 7.31% 6.90% 6.40% 5.63%

Table 2: Examples of monthly prepaid churn reduction, 2010-13 annual average, selected operators
Source: GSMA Intelligence

Structural changes

Structural market-level factors can drive fluctuations in churn trends. Such factors can
include seasonality, SIM taxation and changes in reporting policies such as a change in an
operator’s or regulator’s definition of active connections.

An example of the impact that SIM deactivation carries on churn patterns can be seen
in India over the period 2009-13. The churn fluctuations in India - the second biggest
telecom market in the world in terms of connections – which are shown in Figure 9
weighed heavily on the global and regional mobile churn trends in the period of 2010-13.
The decline in churn noted in 2013 in the country– countering the sharp growth in churn
rate that took place over the previous three years – is mainly due to the change in the way
Indian operators defined active prepaid connections.

In 2010, the Telecoms Regulatory Authority of India (TRAI) changed the length allowed
for the activity period of each SIM connections to 90 days, from 180 days previously.
The TRAI calculates active SIM connections based on its Visitor Location Registry (VLR)
data, indicating substantial inactive connection bases when compared against operators’
reported total connection bases.

Subsequently in 2011, TRAI reported that only 70% of the 850 million SIMs in India were
active – hence an inactive SIM base in the country of nearly 250 million. As a result
the Department of Telecoms (DoT) revised its policy in terms of allocating the scarce
resource of new phone numbers to operators, with the offer of additional number series
to operators now based on the share of their registered connections that were actually
active.

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 GSMA Intelligence Mobile churn trends and customer retention strategies

8%

7%

6%

5%

4%

3%

2%

1%
2010 2011 2012 2013

Figure 9: Monthly churn, annual average, India

Source: GSMA Intelligence

This encouraged operators such as Bharti Airtel, Vodafone and Reliance Communications
to clean-up inactive SIMs from their connection bases, further contributing to substantial
declines in churn rates from 2012 onwards.

Similarly Thailand’s AIS has shown a significant reduction in churn since 2012, also mainly
due to changes in accounting policies. In their Q4 2013 report, the operator mentioned
the extension of prepaid SIM validity which was put in place by the regulator as the reason
behind the lower prepaid churn achieved in that quarter.

In parallel, market seasonality can cause fluctuations in churn trends. For instance, in
Russia, mobile operators explained that there is a high take-up of prepaid SIMs during the
third quarter of each year as a result of temporary workers migrating from CIS countries.
After the seasonal workers have returned to their home countries, Russian operators then
disconnect the inactive SIMs based on their prepaid activity period – the definition of
which differs from one operator to another – further leading to seasonal churn fluctuations.

Lastly, new regulations such as charging taxes on active SIMs can lead to SIM deactivations
that tend to trigger churn fluctuations. For instance, in Brazil, disconnecting inactive SIMs
was incentivised by the regulator through charging ‘FISTEL’ taxes on all active SIM cards.

Customer retention strategies

By researching the operators who have managed to reduce churn in recent years we have
gathered a list of common successful retention strategies that are focused on tariffs and
services.

Loyalty programmes

In Kenya, Safaricom recently stated that their churn rate reduced as a result of rewarding
customer loyalty. They introduced a loyalty programme called Bonga for both prepaid and
contract customers in 2007. Through the Bonga loyalty programme customers can earn
Bonga Points as they use Safaricom services such as voice calls, data, text messaging and
M-Pesa mobile money transfer service. Bonga Points can be exchanged for rewards ranging
from voice minutes, data, SMS and MMS bundles to merchandise, and are redeemable at
any Safaricom Retail Centre countrywide.
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 GSMA Intelligence Mobile churn trends and customer retention strategies

In Russia, MTS has witnessed a considerable improvement in its churn rate since 2010
by introducing different strategies to maintain its loyal subscriber base, as mentioned
in their Q4 2013 report. Tariff plans such as “Super MTS”, which include free calls to all
customers of MTS Russia with the option of having unlimited mobile Internet, have been
instrumental in creating and maintaining a loyal customer base though they were not
explicitly branded as loyalty programmes. Moreover, MTS is expanding its MTS-Bonus
loyalty programme through which Bonus points can be earned when customers buy a
phone from MTS shops, register with the programme, spend money with MTS, or invite
friends to register. These Bonus points can later be redeemed for packages of SMS, MMS,
voice or data, or gift certificates with some partners of MTS.

Shared voice and data plans

US operators such as AT&T and Verizon Wireless have noted an improvement in churn
since 2012, when they started offering innovative contract tariffs that allowed subscribers
to share minutes, texts and data allowances across multiple devices.

Verizon Wireless introduced its “Shared Everything Plan” in June 2012, which offered
unlimited voice minutes and text messages and a shared data allowance for up to ten
devices. Verizon has since upgraded and rebranded the “Share Everything” plan to “More
Everything”, adding new features such as unlimited international text messages and
cloud storage. 50% of the operator’s contract base adopted its ‘More Everything’ plan as
reported in Q1 2014.

Similarly, AT&T’s “Mobile Share Package” offers unlimited voice minutes and text messages
and a shared data allowance for up to 10 devices. The operator mentioned shared plans as
a key driver for customer retention and reducing churn, claiming that “about 90% of our
post-paid smartphone subscribers are on FamilyTalk plans (family plans), Mobile Share
plans or business plans, which provide for service on multiple devices at reduced rates,
and such subscribers tend to have higher retention and lower churn rates.” AT&T reported
that in Q1 2014 nearly 33 million connections (about 45% of its contract base) were on
Mobile Share plans. They have also stated that the number of Mobile Share accounts
reached 11.3 million with an average of about three devices per account.

Shared data plans are also available in other markets, for instance through Teliasonera in
Sweden, EE in the UK, Telefonica in Spain and Brazil, and SingTel and Starhub in Singapore.

Handset subsidies and flexible device upgrade programmes

Handset subsides have traditionally played an important role in reducing churn, as well
as driving smartphone and technology penetration. Yet, device subsidies represent an
incremental cost that is weighing heavily on operator profitability, notably in the developed
region where smartphone penetration has reached high maturity levels.

Movistar (Telefonica) in Spain was among the first operators in Europe to remove handset
subsidies for new customers in Q1 2012 - a move that was only temporarily replicated by
its rivals. While the statistical correlation between handset subsidy cuts and an increase in

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 GSMA Intelligence Mobile churn trends and customer retention strategies

churn or a reduction in connections market share cannot be demonstrated, it is believed

that the removal of handset subsidies negatively impacted Movistar’s churn initially.

Across the developed world, there is a clear trend that shows operators moving away
from subsidies, in most cases rationalizing subsidies towards high-end 4G devices on
contract offers, rather than eliminating it entirely. In the developing world, more operators
are seeking similar strategies, notably Oi in Brazil, which recently claimed that “we have
pretty much removed handset subsidies”. Meanwhile other groups such as Millicom are
rationalizing subsidies on par with the gradual availability of low-cost smartphones.

Managing churn whilst offering contract-free tariffs and reduced subsidies is a challenge
that operators have begun to address by introducing flexible device upgrade programmes.

T-Mobile US announced in March 2013 that it would no longer offer subsidized handsets
and would decouple the cost of handsets from its mobile tariffs. Furthermore, T-Mobile
introduced a service – branded JUMP! – that allows customers to upgrade their handsets
whenever they decide to. The operator recently announced that it has managed to reach
a record low contract churn rate of approximately 1.5% in Q1 2014, thanks to the success of
its “Un-Carrier” strategy. In Q1 2014, T-Mobile US stated that it had 5.3 million subscribers
signed up to its JUMP! programme.

In April 2013, O2 (Telefonica) UK introduced a new plan called “O2 Refresh” (Figure
12) which, similar to T-Mobile’s plan, decouples device subsidies from service costs and
facilitates device upgrades. O2, which has the lowest churn rate amongst UK operators,
announced in their Q1 2014 report that the upgrade programme served as a “retention
tool” that led to a “successful management of customer loyalty” and a stabilization of
contract churn. In Q4 2013, O2 UK claimed that “56% of contract commercial activity has
been done under the “Refresh” proposition (+3 percentage points quarter-on-quarter)”.

Similarly, AT&T introduced a more flexible device upgrade plan – branded “Next” - in Q3
2013 with a view to reducing churn. The operator’s Q1 2014 results show that its new
tariff accounted for more than 40% (2.9 million) of all smartphone gross additions and
upgrades.
02 Refresh Standard contract

£15.00 £17.00 £32.00 £?.00 £?.00 £32.00

Phone Plan
+ Airtime Plan
= Monthly bill Phone Plan
+ Airtime Plan
= Monthly bill

After
24
months

✓ £17.00 £17.00 £?.00 £?.00 £32.00

Phone Plan Airtime Plan
= Monthly bill Phone Plan
+ Airtime Plan
= Monthly bill
All Paid

We won’t keep charging you Unlike a standard contract

for your phone

Figure 10: O2 Refresh plan, UK

Source: Company data

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Unlimited voice and text

Offering unlimited calls and text messages along with several data allowance options is
a strategy that has been adopted by a number of operators to transition their business
model from a voice-centric model to a data-centric one. Operators such as Vodafone and
O2 in the UK see this as a way of hedging themselves from the threat of internet-based
messaging applications.

In March 2012, O2 (Telefonica) unveiled its ‘On & On’ offering which included unlimited
mobile and landline calls as well as unlimited texts, along with 1GB of mobile data per
month. The offer was available for both contract customers and small businesses. O2
mentioned in its Q4 2012 report that the “worry-free tariff” of On & On is instrumental in
keeping churn low in the country.

Similarly, Vodafone launched its ‘Red’ Plan in key markets such as UK, Germany and Spain
in the second half of 2012. In their Q2 2014 report, they announced that currently they
have 14.3 million Vodafone Red customers across 20 markets, which has helped them
improve their churn rate.

Vodafone first launched its new plan in the UK for contract customers as well as businesses
in September 2012. The ‘Red’ contract plan included unlimited minutes and text messages
with data allowances of up to 2GB. As of March 2014, Vodafone’s Red connection base
reached nearly 2.7 million in the UK, contributing to a drop in churn to 2.70% in Q4 2013,
from 2.91% a year ago.

Multiplay offers

Convergence often helps to increase the lifetime of a consumer and trigger improvement
in churn trends. Multiplay offers help to lock-in customers on longer term contracts,
offsetting challenges in managing the lifetime of customers brought in by contract-free
offers and flexible device upgrade programmes.

In Spain, Telefonica launched its “Movistar Fusión” offer in October 2012, offering fixed
line, fixed broadband, IPTV and mobile voice minutes, SMS and data, all under a single
bill. Since then, the operator has witnessed a significant adoption of this bundle, and in Q1
2014, 50% of its mobile contract base was on Movistar Fusión tariff. The operator noted
that increased adoption of ‘Fusión’ has led to “a more sustainable revenue model, through
the continued improvement in our services’ lifetime thanks to ‘Fusión’ churn, which is
notably lower compared to standalone services”. Telefonica added that “the lifetime of a
‘Fusión’ customer is much longer” than customers on traditional mobile tariffs.

Similarly, in Thailand, TrueMove noted recently that its “convergence campaigns

continued to receive strong market response, facilitating acquisition and retention in all
core businesses” (Figure 11). TrueLife+ was launched in 2010 as the umbrella under which
True Group bundles its products and services. Over the past 12 months, TrueLife+ has
introduced several bundled packages and promotions, including free airtime, additional
and free TV channels, high-speed internet networks, unlimited free wifi and certain
discounts on services depending on eligibility.

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Similarly, KPN Group stated recently that its focus on multiplay offers helps to “increase
customer lifetime and to reduce churn”, notably thanks to growth in the adoption of
quad-play offers (see figure 12).

3,000 800

700
2,500
600
2,000
500

1,500 400

300
1,000
200
500
100

0 0
Feb 12 Jul 12 Feb 13 Jul 13 Feb 14 Q1 2013 Q4 2013 Q1 2014

2 products 3 products 4 products quad-play customers triple-play customers

Figure 11: TrueMove’s Convergence Index Figure 12: KPN Group’s multiplay customers
customers (in ‘000s households) (in ‘000s)
Source: Company data Source: Company data

Content bundling

Bundling mobile services with premium content is an innovative way of offering value-
added services and managing churn.

Singtel recently explained that “one of the key initiatives that we will be rolling out
organically is in the video content distribution area, where we are working together with
our associates to come up with a video product for our smartphone customers in the six
geographies that we will be rolling out in the next financial year. That’s predicated on the
assumption, simple assumption, that if we give an affordable package of video content,
built through our postpaid and prepaid billing systems, we will be able to get traction and
market share”.

In March 2012, KDDI introduced its ‘au Smart Pass’ – application and content bundles for
smartphone users - offering with the operator claiming that “we are working to acquire
new customers and lower the churn rate as customers subscribe to cross-selling, thereby
expanding the customer base”. As of Q2 2014, KDDI has reached 10.7 million ‘au Smart
Pass’ subscriptions and has begun providing coupons and other benefits when customers
use ‘au Smart Pass’ and ‘au WALLET’ in combination. The operator’s ‘au Smart Pass’
includes a number of content bundles (music, video, ebook store, enabled by its secure
authentication system (au ID) charged for a fixed monthly fee).

In Sweden, Teliasonera started a partnership with Spotify - a leading provider of music

streaming – in 2009, and has since expanded this offer across other markets such as
Finland and Denmark. The operator’s strategy was to generate an additional revenue
stream as well as building more customer loyalty. Telia (Teliasonera) in Denmark mentioned
that bundling offers with Spotify helped them reach an all-time low churn rate in 2012.

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Figure 13: KDDI’s ‘au Smart Pass’ ecosystem

Source: Company data (Q4 2013)

Moreover, Vodafone UK offered a range of premium content through partnerships with Sky
Sports and Spotify when they launched LTE services and Red 4G-ready plans in the UK in
August 2013. A free six-month subscription to either Sky Sports or Spotify Premium was
included in the Red 4G-ready plan. Vodafone reported 637,000 4G customers in Q1 2014,
of which 48% have activated the sport and music offers. They have recently partnered
with another well-known content provider, Netflix, offering Red 4G-ready customers a
free six-month access to a wide range of movies and TV series.

In Brazil, Vivo (Telefonica) stated that they have managed to reduce their contract churn
by promoting innovative services. They recently introduced two new content services -
“Vivo Musica” and “Vivo Sync”. The former is a music streaming service run by Napster,
which can be added on top of monthly bills and does not include advertising. “Vivo Sync”
is a service for storing, synchronising and sharing contacts list, photos, videos, calendars
and files among tablets and smartphones with the Android, iOS, BlackBerry and Symbian
OS, as well as Windows and Mac computers.

Mobile money

Mobile money enables customers to convert cash to and from electronic value (“e-money”)
as well as transferring or making payments. Vodacom’s mobile money financial service,
M-Pesa, operates across several markets and reached close to 6 million customers in Q1
2014. The operator noted that “financial services such as M-Pesa also keep customers on
our networks, which reduces churn”. In Kenya, Safaricom saw its blended churn drop from
2.57% in Q1 2011 to 1.61% in Q1 2014.

In Somalia, Telesom launched its mobile money service - ZAAD - in June 2009. Various
types of transactions including transfers, purchases, fee payments, salary payments and
cash storage were facilitated via ZAAD. Telesom managed to reduce its customer churn
rate to 2% in 2013 from the high rate of 5% prior to launch of ZAAD in 2009.

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Insight: how will operators continue to fight churn?

In our 2011 report, we stated that demand for data services will trigger the introduction of
new tariffs and services which will have an impact on churn in the long-term. At the time,
we predicted that “having the most competitive data package extends much further than
simply having the best value tariffs. As apps and other forms of data content become
increasingly important to subscribers, operators that are able to offer the latest ‘killer
app’ or other value-added services could be in the best position to attract a competitor’s
subscribers to churn, especially those which can offer the content on an exclusive basis”.

Reflecting back on these predictions, we believe that several operators have followed
the route described above over the past four years, considering data and content as key
differentiators. Some of the examples of new tariffs and services described previously
clearly illustrate this trend, and we expect that complementing tariffs and services with
localised content will continue to positively impact operators’ competitiveness in the near
future.

As an example, KDDI in Japan is focusing on its “Smart Relations Concept” aimed at

“enhancing the relation between smartphones and real life”. The operator added that
“we will continue to propose a number of ways in which people can make the transition
from owning smartphones to mastering their use”. We expect that more operators in
the developed world will continue investing in value-added services to boost the level
of consumer engagement with mobile applications and content, leading to improved
customer retention.

Similarly, we anticipate that the changes that operators are introducing to data roaming
tariffs are likely to play a role in competitiveness and can positively impact churn. Following
regulatory decisions in Europe, several operators have reduced roaming prices, e.g., Three
in the UK, which offers a “Feel at Home” data roaming tariff that lets its customers use
their home allowance of minutes, texts and data in 16 selected countries. T-Mobile US has
also introduced its “Simple Choice” plan, offering unlimited global data and texting across
100 different countries. Back in Europe, Orange recently explained that they are using
new roaming tariffs “to stand out from competition to attract customers”, and ultimately
fight churn.

Orange also stated recently that “there is room for customers who want a different
service, who want a better product, who want more abundance, more flexibility, more
comfort, more user-friendliness, better connectivity, better network performance, who
want appealing rates, better roaming rates”. This reflects the different components that
operators have to tackle to improve churn, showing the importance of innovative and
competitive tariffs and services.

In addition, the growth of connected devices within the internet of things (IoT) space
opens up new market opportunities for mobile operators. Embedded SIM provides a global
remote provisioning platform for the M2M technology, and this is likely to impact churn
trends in the M2M/IoT market as it will enable over the air installation and management
of operator profiles. Providing new internet of things services that can be tied in with
customer’s mobile contract is expected to influence customer loyalty and subsequently
could help to fight churn.

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 GSMA Intelligence Mobile churn trends and customer retention strategies

Lastly, another trend related to tariffs and services that we believe will play a role in
improving churn rates in the near term is the introduction of mobile authentication services.
Orange recently claimed that an important emerging trend is “the need for digitisation
and need for web-based relations” with customers. Improving churn in the long-term
essentially means that operators have “to stand out in this global competition”, according
to the operator, and the fact that smartphones are considered to be “the remote of life”
shows the role that mobile identity services can play in achieving this goal.

Meanwhile, Axiata stated last year that “utilising the Dialog identity across multiple
third party sites will contribute significantly to churn reduction”. Dialog Connect is a
mobile authentication service launched by Axiata’s subsidiary in Sri Lanka (Dialog), and
has amassed more than 400,000 subscribers since its launch in 2012. These services
– notably supported by the GSMA-backed Mobile Connect initiative – are expected to
become significant customer retention management for operators looking to invest in
safeguarding consumers’ personal data.

Similarly, KDDI’s content bundle offering – au Smart Pass - is relying on its authentication
system – au ID – to function. As of May 2014, ‘au ID’ also enables the operator mobile money
service, ‘au Wallet’. The operator recently added that “during the fiscal year ending March
31, 2015, we expect to cultivate a new value chain that will emerge via the convergence of
the Internet and physical worlds through links between ‘au Smart Pass’ and ‘au WALLET’,
thereby contributing to the expansion of ‘ID x ARPU’”. This shows the importance of
mobile identity and authentication services to improve customer engagement, retention
and ultimately improve revenues.

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 GSMA Intelligence Mobile churn trends and customer retention strategies

About the authors

Nika Naghavi Analyst

Nika is part of the forecasting team, responsible for the modelling

of mobile operators’ connections and technology trends. Prior
to GSMA Intelligence, Nika completed her PhD at the Centre for
Telecommunications Research at King’s College London. She also
holds a BEng (Hons) in Telecommunications Engineering from King’s
College London.

About GSMA Intelligence

GSMA Intelligence is the definitive source of global mobile operator data, analysis and
forecasts; and a publisher of authoritative industry reports and research.

Our data covers every operator group, network and MVNO in every country worldwide
— from Afghanistan to Zimbabwe. It is the most accurate and complete set of industry
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GSMA Intelligence is relied on by leading operators, vendors, regulators, financial institutions

and third-party industry players, to support strategic decision-making and long-term
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For more information, visit gsmaintelligence.com/about/

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