In November 2013, RCom India deactivated 10M subscribers. According to the RCom spokesperson “Reliance Communications has de-activated around 10 million unprofitable, low-end subscribers at the lowest end of the ARPU (average revenue per user) range. This will have no impact on revenues and will instead contribute to the improvement of service quality on the network. Our focus is entirely on enhancing profitable minutes on our network and not on the number of subscribers.”
The justification of removing unprofitable customers seems to be sound business practice since it decreases costs and increases margins. CSPs often define unprofitable subscribers as “subscribers that cost the CSP more than what they pay”. A typical scenario of unprofitable subscribers consists of subscribers that just consume too much for what they are paying according to their price plan.
The math is simple: about 10% of the subscribers are utilizing 90% of the resources (click here to read a study from 2011. I am not convinced that the ratio is still the same for 2013, but the big picture is clear). These 10% drive the necessity of costly upgrades to the infrastructure. Another typical scenario consists of subscribers that only pay per usage, and do not use any services. These users incur cost by simply residing on the IT and network systems (which cost money). Needless to say, each CSP is taking a close look at these kinds of customers.
Detecting unprofitable subscribers and finding ways to get rid of them (e.g., by preventing them from draining resources) can be done in two ways: either by reducing their QoS, for example imposing throttling, or by charging them high prices per use without the option to sign up for unlimited bundles. Those customers will then or stay and pay (becoming profitable), or leave to join the competition (becoming their problem).
There is however one problem with this: even if it looks like a duck, walks like a duck and quacks like a duck – it is not always a duck, it might be an Angry Bird!
Let me share a personal story with you.
Several years ago I bought a phone for my 5-year-old daughter to call her when we wanted to pick her from an afternoon activity. We opted for a pre-paid solution. Since the CSP could not connect her pre-paid minutes to my regular account, she was considered to be an “unprofitable subscriber.” She occupied resources, almost never made calls and rarely received them. In other words, she incurred costs for the CSPs without generating revenues.
As time went by, she started to use more and more minutes; still not that many, but her phone bill started to get higher and higher. It was still not high enough to justify a postpaid package with the current provider. Once a new low-cost operator entered the market, its offering of a cheap postpaid package was enough to entice us to move my daughter’s account to this new operator.
It is important to point out that my old CSP did not invest any time or effort in her retention, since she was considered to be an “unprofitable subscriber”. The new low-cost operator on the other hand, provided good customer care, good connectivity, and a sharp price.
The result? The whole family churned to the new operator. My daughter is now a teenager, consuming services with her smartphone as all regular teenagers do (enough said!). I am happy with my new operator and I recommend it to all my friends.
Moral of the story? My old operator got rid of an unprofitable subscriber… but lost a lot of profit in the process.
Now let’s consider another scenario with the same result. Suppose that a CSP has a large enterprise customer who is the CEO of an enterprise. This CEO is consuming huge amounts of bandwidth that are completely disproportional to his/her payment plan as a subscriber. Obviously the CSP does not want to treat this CEO as an unprofitable subscriber. The CSP is making nice profits from the enterprise, and obviously giving the CEO a bad usage experience or increasing his/her rates might result in a huge loss for the CSP.
The CSP will therefore entitle him/her to enjoy a VIP treatment. This kind of scenario is no exception; there are many more formal and informal relations with the same impact. For example, the subscriber could be the CEO’s personal assistant, an influencer, the owner of a small or medium business, the son/daughter of one of the above, or is a member of a family with many relatives. They might also be early adopters that are willing to pay high prices for the next new thing; they might be journalists or bloggers, and so on.
Data about such subscribers is valuable before labeling subscribers as “unprofitable” and getting rid of them. Most of these relations are not explicitly known to the CSP; therefore they are often ignored leading to bad business decisions. Techniques such as data mining, big data analytics and link analysis are necessary to detect and analyze such relationships, and evaluate their business impact.
All information, including data from social media and in other external sources can be leveraged for many purposes, including churn detection, cross selling, etc. One of the most important and profitable purposes that is often overlooked is identifying profitable and unprofitable customers and distinguishing between them.
So before getting rid of “unprofitable” subscribers, thoroughly investigate them! They might hold a hidden treasure!
Great article, thanks Gadi!