Customer defections cost mobile operators billions

High customer churn and poor business offerings are costing European mobile operators billions of pounds a year in lost revenues, according to two separate industry reports.

Retaining Customers and Minimising Churn by Analysys Research claims European mobile operators lost €5.6bn in revenues and €4.5bn in unnecessary expenses in 2003 due to high levels of customer defection - equivalent to 8.6 per cent of total mobile revenues.

Churn rates between operators varied widely with the low best practice benchmark figure set at 12 per cent compared to some as high as 35 per cent.

Eddie Murphy, author of the Analysys report, said customer churn is posing difficult challenges for operators.

"People feel there are better deals elsewhere and operators are contacting people with better offers. Customers either want more for less or more for the same. There is no such thing as customer loyalty anymore," he said.

But the tactics for dealing with this are different depending on whether the operator is established in the market or a new entrant.

"If you have an established presence you want to suppress churn. These operators are looking at extended contracts of 24 months so that the ability to move is limited," said Murphy.

For new 3G entrants such as 3 in the UK, the challenge is even more complex, according to the report.

"One of the biggest challenges is for 3 to hold onto customers it wins. It has a customer base that has proven it is willing to move. It is a serious challenge to hold on to them," Murphy said.

A separate report from market researcher Datamonitor claims mobile operators are selling business customers short with their corporate data offerings.

Unless a mobile operator makes a "dramatically bold move" by acquiring an IT services capability, they will simply be left fighting it out for low-value mobile email implementations and undercutting each other on price, according to the report.

Richard Clifford, analyst at Datamonitor, said there is little opportunity for mobile operators to differentiate their services unless they move up the value chain by making an IT services acquisition.

"Mobile operators are increasingly targeting business customers, though corporate data solution offerings are not what could be termed comprehensive. Although they are all trying to move up the value chain, they simply don't have the necessary skills to do this effectively and are left competing purely on price," he said in the report.