Telecom Carriers Reduce Collections to Get “Customer For Life”

Collections in the telecommunications industry is buffeted by crosswinds­ with­ downward pressure coming from the industry itself, in contrast with upward pressure from the general economy, according to Jeff Kagan, an Atlanta-based telecommunications analyst.

Industry churn – defined simply as customers who leave a company – has dropped from nearly 5 percent about five years ago to under 2 percent today. That’s because the companies have better technology, meaning fewer complaints, and the firms are treating people as potential lifetime customers rather than easily replaceable clients, according to Kagan.  

As part of enhanced customer service, telecom carriers are being more lenient about customers who cancel contracts – particularly those who move out of the wireless carrier’s coverage area. That means fewer accounts are going to collections. 

“If [the carrier] has to absorb the last three months of the contract, that’s usually about $150,” Kagan says. While no company wants to absorb these costs if they can avoid it, the telecom firms are seeing this as more amenable than offending the potential “customer for life.” He may well come back at a later time, particularly if the company he’s leaving adds services (e.g., broadband and wireline services as well as location-based services and other new features) or if he has problems with his new carrier. However, the chances of the customer returning are all but nil if the company he leaves sends him to collections for a couple of months on a cancelled contract, Kagan explains.

Meanwhile, a weakening economy could drive some telecom firms to become tougher with collections, Kagan theorizes.

Churn as a statistic remains unscientific. For instance, the wireless carriers have yet to report churn for wireline accounts, though Kagan expects such reporting to come in the near future. Carriers offer widely divergent numbers with Sprint’s reported churn rate in its last quarter as 2.3 percent, while AT&T reported churn of only 1.3 percent.