Consumers often think of carriers being somewhat stuffy and dusty, being slow to give customers flexibility and big at small print. But there are great exceptions to the rule with T-Mobile in the US, Free in France and Tele2 in Sweden, and we believe the next two years will see some further fun, entertaining and disruptive carrier offerings on the market. Continue reading Freedom to stay – The power of 40000 Tweets
Bucket plans – with volume caps on the number of minutes, messages and Mbytes – have been offered by mobile operators for years. Even though the composition has varied over time (e.g. through elements made unlimited), the concept is well known to customers.
Monthly caps have become the standard of our industry. Another standard is to reset those caps at the start of a new month. This means that any balance left – minutes, messages, Mbytes – is voided. Or confiscated – to use the word of John Legere, CEO of T-Mobile USA. Continue reading Rollover: The next big thing for customer retention
The subsidy model – which dominated operators’ handset and equipment sales in mature markets for decades – is rightfully retiring. It wasn’t a brilliant idea to discount goods not produced inhouse (taking cost pressure away from equipment manufacturers like Apple) and, to compensate, overcharge for the services actually produced (making over-the-top services and Wi-Fi more attractive). Continue reading Churn: Still a concern
T-Mobile in the Netherlands continues its rally towards higher EBITDA margin: One year ago, it was 28%. Now it’s 43%. T-Mobile’s reported figures shows just how sensitive sales costs are to the mobile business margin.
In Q4 2013, T-Mobile cut its subscriber retention cost (SRC) from a level above 200 EUR to less than half. It has stayed at the new, lower, level since. Even though done during fourth quarter – where margin normally is weak due to seasonal sales – T-Mobile’s EBITDA margin took a leap upwards quarter-to-quarter. Another leap came in Q1 2014 when T-Mobile sold its fixed business (traded under the “Online” brand).
In the just-reported third quarter, T-Mobile’s EBITDA margin took yet a leap: This time due to a significant reduction in contract SAC (subscriber acquisition cost).
The text book says that such dramatic reductions in SAC/SRC would immediately penalise T-Mobile who would experience a shrinking base and market share since existing customers would churn out and new customers would’t join. The interesting thing is that existing customers haven’t left: The orange curve shows a stabilising contract churn of about 15%. T-Mobile has, however, still experienced a decline in their total base, but this has mainly been within prepaid. [The reported reduction in Q3 was almost exclusively to the disposal of the Simpel brand].
According to T-Mobile, the answer to how this has been possible comes in two parts:
- Increasing mobile data usage and revenue
- Increasing revenue from equipment
In a market where T-Mobile’s two current MNO competitors KPN and Vodafone both go in the converged multi-play direction, it will be interesting to follow if T-Mobile can stay on this route – especially as Tele2 is about to enter the Dutch market as MNO within short.
TeliaSonera started to separate out equipment revenue in their new reporting format. Lovely!
We can now compare the equipment revenue vs. mobile revenue ratio for all Swedish operators (see graph). According to reporting notes, Telenor and ‘3’ realise the full equipment price as equipment revenue and let the equipment subsidy dilute service revenue instead. Telia and Tele2 realise the actual equipment sales price after subsidy as equipment revenue.
Active in the same market, there is likely no material difference between the equipment sales of the operators; the differences between Telenor/’3′ on one side and Telia/Tele2 on the other are rather a consequence of the revenue recognition used.
If so, we can by comparing these two approaches estimate that Swedish operators averagely subsidise around one third of the nominal equipment price. That is how much Telia and Tele2’s lines would have to be raised to match the lines of Telenor and ‘3’.
This is our fourth analysis on subscriber acquisition cost (SAC) and subscriber retention cost (SRC). Previous SAC & SRC analyses showed that an increase in SRC had a positive effect on contract churn without any negative effect on EBITDA – as long as not exceeding 100% of contract SAC.
Our new analysis shows that much has happened in 2013: Average unit SAC and SRC have decreased significantly. How come – and what has it led to?
Based on data from 35 mobile operators in 24 mature markets globally.
The analysis comes in two versions: A public version which you can download below – and a premium version which adds country-specific SAC & SRC analyses on eight countries: France, Germany, Poland, Austria, the Netherlands, UK, Denmark and Canada.
Download public version: tefficient industry analysis 2 2014 SAC vs SRC – public version
A1, the Austrian incumbent, today reports a year-on-year EBITDA decrease of 19.4% for 2013. In this situation, you have to highlight the positives. Telekom Austria group is e.g. saying: “A1 Premium Monthly Churn Rate at Historic Low“.
By now, our industry should have learned that churn figures never can be referred to without also referring to the subscriber retention cost (SRC). It’s simple to decrease postpaid churn – if you have deep pockets: Pay higher SRC to get more customers to stay.
So since Telekom Austria hasn’t done it – let us plot postpaid churn against SRC. It’s the graph below.
In 2013, A1 has been able to reduce postpaid churn to below 10% on annual basis which – internationally compared – is very low. But starting Q4 2012, A1’s SRC elevated from around 140 EUR to about 170 EUR. This happened at the same time as smartphone price points started to come down which, in other markets, was positive for SRC. The reason to A1’s increase must therefore be found in the local market: In January 2013, ‘3’ incorporated Orange to become a strong number 3 in Austria.
But how good is A1’s churn rate? If we plot the figures of T-Mobile and ‘3’ into the graph just above, we can see that competitors report as low churn as A1. (Prior to adding Orange, ‘3’ was even at annual churn levels below 3%). T-Mobile has followed A1’s SRC upwards, but from a lower level. In a local perspective, A1’s achievements seem in line or even substandard.
Note. T-Mobile and ‘3’ have not yet reported Q4/2H 2013. ‘3’ doesn’t report SRC.
Presenting to a global audience of Comptel customers at their annual user group: “In the smartphone and quad-play era: Churn & retention costs have become toxic. Customer loyalty must be earned“