Countdown to Churn

Mark March 14, 2007 on your calendar as churn day. That’s when wireless customers will be allowed to keep their cellphone numbers when they switch carriers.

The date is significant because it could signal a wave of customer churn-industry lingo to describe individuals who switch providers. The CRTC has decreed March 14 as the day that Telus, Rogers (including Fido) and Bell must allow British Columbia, Alberta, Ontario and Quebec customers to take their phone numbers with them when switching to a new wireless provider. By next September, other carriers must do the same and wireless number portability (WNP) will cover all of Canada.

That means the countdown is on in the hotly contested wireless communications market, because one wireless provider’s loss is another’s market share gain. And it’s a moment Virgin Mobile has anticipated since it entered the Canadian market. Until now, competitors have partially controlled churn by locking their customers into multi-year contracts. Virgin is going after those people by encouraging them not to sign new contracts before number portability is a reality. Its website, freethenumbers.ca, is an attempt to inform consumers about the new development that Virgin believes the big carriers (who it calls “rulers of the numbers”) will try to keep quiet.

“Don’t be an ass (and) don’t sign a long-term contract and get locked in for another three years,” advises a voiceover on the website. The site says that Canada will soon join Holland, Germany, Australia, the U.S., France, the U.K., Spain, Italy and Norway in implementing WNP, and encourages visitors to e-mail friends and family with the news that WNP is on the way.

The website seems to be right on the money in terms of how the marketing battle will play out, according to telecom analysts. They expect the three major carriers will address WNP, not directly, but through aggressive ad campaigns designed to sign people up to contracts of two or three years. For its part, Virgin will wrap its brand around WNP because analysts say the newbie has the most market share to gain. But will WNP have any lasting impact on the industry?

John Boynton, chief marketing officer at Rogers Wireless, thinks WNP will ultimately be a “non-event.” And Rizwan Jamal, senior VP of marketing for Telus Consumer Solutions, says while initially some consumers will flee their existing carriers in anticipation of greener pastures, the impact will be “a short blip.”

They back up their claims by pointing to the U.S. experience. A year after the U.S. ushered in WNP in November 2003, less than 6% of American wireless users ported their numbers. That is a stunningly low number given most U.S. industry experts had estimated in the first year roughly 39 million ports based on what consumers were saying in surveys. The figure, reports the Federal Communications Commission, turned out to be only 8.5 million.

Nor did WNP register any long-term effect on churn rates in the U.S. In the first quarter of 2004, churn increased to 2.5% from 2.4%. A year later, churn levels dropped to 2%, which is below pre-WNP levels.

“We are not anticipating any marketing battle or price war,” says Boynton. He suspects customers will stick with their existing carriers for the same reason they chose them in the first place. Those reasons could include the clarity of the network or the features of a handset, since customers wouldn’t be able to bring their handsets with them because phones are incompatible between the networks of different service providers.

Analysts don’t expect much churn in Canada either, at least not initially. That’s partially because roughly 65% of wireless consumers are locked into contracts of at least two years (41% of those customers have three year contracts), according to Yankee Group’s 2006 Canadian Mobile User Survey. However, the same survey found 41% of customers would “likely” change mobile service providers if they could keep their same number (see chart above). Currently just over half of all Canadians are mobile phone subscribers, according to the Canadian Wireless Telecommunications Association (CWTA).

To counter potential churn, the big carriers are on the offensive with aggressive marketing touting the superiority of their services. In an effort to attract and retain customers, a new campaign from Telus goes beyond hyping cheap, multi-year packages. The carrier is running a campaign coined “Future Friendly Promises” in which Telus will, among other initiatives, guarantee that 99% of wireless calls will remain connected-otherwise customers receive a financial credit to their account. These promises are being communicated through a massive integrated ad campaign, created by Taxi, themed around the slogan “Get where the going is good.”

“For the first time, we are standing behind our wireless service and putting our money where our mouth is,” says Jamal. “This establishes our place in the market in terms of being where people want to be.”

Rogers and Bell have not yet unveiled their marketing plans leading up to WNP. But with Telus and Virgin Mobile already engaged, a marketing battle is brewing. Nathan Rosenberg, chief marketing officer of Virgin Mobile Canada, says his department is planning to heavily promote the freethenumbers.ca site. Other efforts include enlisting Virgin founder Richard Branson in a campaign to encourage Canadians to resist signing competitors’ contracts before March 14, and Virgin is currently running a TV, print and transit campaign that focuses on customer service and aims to expand its customer base beyond the 16-24 demographic it targeted upon its launch in Canada.

Virgin polled Canadians between February and June, and at the time just 26% were aware of the WNP legislation. Of that number, fewer still knew when it would take effect. “Our biggest challenge is doing what we can to let people know this date is coming. The fourth quarter is the busiest time of the year, and the mainstream carriers will do all they can to convince people to sign up in advance of number portability.” Rosenberg believes by waiting, customers can benefit from better deals. “We want to be as noisy as we possibly can be about this.”

The Canadian Wireless Telecommunications Association has created an information website called wirelessnumberportability.ca, but isn’t advertising the industry development much beyond that, says Marc Choma, director of communications.

Analysts agree that Virgin has the most to gain by being loud about WNP.

“They will benefit because they have the smallest share (with 250,000 customers),” says Goldberg. “And their current base is not threatened because Virgin has no contracts. The only thing that has held back some acquisition is that people couldn’t keep their same numbers.”

Goldberg says the pending arrival of WNP makes the Canadian market that much more attractive to foreign players-particularly Los Angeles-based Amp’d Mobile, which he says had been looking north for some time. (Amp’d just created a partnership with Telus Mobility whereby Telus will sell and distribute Amp’d branded services in Canada. It’s the first international expansion for the U.S.-based mobile entertainment company.)

If number portability doesn’t lead to a more competitive landscape, undoubtedly new players will.