Decreasing customer churn

Jun 26, 2002 12:00 PM, Milind Gadekar

There was a time when the local cable or DSL provider was the only game in town for broadband access. Customers were so grateful to receive broadband access that they tolerated uneven bandwidth, poor service and high prices. But now, broadband access is widely available via cable, DSL, satellite and even wireless transport, and most markets offer at least two of these options. With larger providers spending plenty to attract subscribers, customers realize they have options and are no longer shy about switching providers if they think they can get a better deal.

Customer churn is a familiar headache to long-distance carriers and wireless voice providers, and it has now become an important issue for broadband carriers. Given the cost to acquire a customer, it's far less expensive to keep customers than to churn them. Customer acquisition costs have lingered in the $200 to $500 range per customer, making the addition of new customers a costly proposition. With this type of scenario, a service provider needs to retain a customer for a minimum of two years before they recoup the cost of attaining that customer and begin benefiting from profits. Thin margins and long ROI cycles make customer churn a real concern for the broadband access market. 

What's a broadband service provider to do? There are three key ways to reduce churn and achieve profitable customer relationships. Broadband providers must:

• Offer customized services to create customer stickiness

• Improve service deployment speed and agility

• Reduce operational and capital costs

Creating customer stickiness

As many industries before have discovered, new customers are expensive to acquire and difficult to attain with a commodity service. Today's providers play a losing game of cutting monthly rates or offering free months of service, but essentially they're all selling the same thing-commoditized broadband access.

To shift the focus away from price, providers must develop differentiated services for both enterprise and residential customers, and they must be able to tailor those services as flexibly as possible to suit the needs of individual subscribers or classes of subscribers.

For enterprise customers, such services could include VPNs, firewalls, tiered access to various types of content (streaming video, for example) for different departments, self-provisioned bandwidth upgrades, enforceable service level agreements (SLAs), videoconferencing, URL filtering and intrusion detection. Ideally, the service provider should be able to control each of these services by subscriber or department to maximize network usage and correctly match service levels with departmental budgets.

For home users, providers could also offer different levels of service so that casual Web surfers and e-mail users could pay a lower rate than committed users of interactive gaming or peer-to-peer applications. Other consumer services could include pre-paid billing models, parental control and video-on-demand.

Services like these are the key to accelerating revenues. By delivering such services-tailored for specific subscribers or subscriber groups-and developing the capability to rapidly adjust product offerings as market conditions change, service providers can move beyond their current model of simple, undifferentiated Internet connectivity. And by allowing subscribers to customize their own services, providers can further increase stickiness-customers who invest the time to set up a custom service mix will be less likely to leave at the first sight of a discounted offer. Operationally, service providers need several key capabilities to create customized services:

• Subscriber-level and application-level usage awareness. You can't tailor services to give subscribers what they want if you don't know what they're using. Providers must have the ability to monitor all network flows at higher OSI layers (Layers 4 through 7) in real time, as well as the ability to capture, analyze and report usage. With this knowledge, providers can learn which content or applications are most popular.

• Dynamic bandwidth allocation. The service provider must have a means to dynamically assign appropriate levels of bandwidth by subscriber for each service, application or type of content. Armed with information about how much bandwidth each subscriber is using and which applications and content are most popular, providers can stop bandwidth abuse and tailor the network for maximum efficiency. Some providers report that fewer than 10% of their users are claiming 80% of available bandwidth by running Web servers from their homes or conducting lengthy VPN sessions at consumer access rates. But with the ability to identify "bandwidth hogs," providers can limit their access or upgrade them to higher value service levels. And, with the ability to dynamically control bandwidth by subscriber, application, time of day and other parameters, providers can assure their subscribers a consistent experience during slack as well as peak usage times.

• Customer self-provisioning. Customers should be able to opt for additional services, content or bandwidth levels on their own. Putting provisioning in the hands of the customer enables "impulse" sales of additional services and saves the time and cost of provisioning services from the network operations center.

• Flexible billing capabilities. Flat-rate billing doesn't meet subscriber needs, nor does billing by access time or megabytes transferred. Providers need the ability to charge by type of content, by application, by time of day and other metrics to maximize their revenues and to ensure fair billing for their subscribers. With flexible billing and self-provisioning, customers know exactly what they're paying for, so they're less likely to be unpleasantly surprised by a surcharge on their monthly bill.

Improving service deployment speed and agility

Finally, service providers must improve the speed at which they can develop and implement new services, as well as their ability to flexibly develop the services subscribers will need in the future. Adding pre-paid billing or two hours of high-quality streaming video each night should be as simple and fast for a broadband subscriber as it is to add call waiting or speed dialing to a voice line. For rapid deployment of current and future services, providers need not only the dynamic bandwidth allocation mentioned previously, but also the applications to quickly roll out popular services and the programmability to develop new services down the road.

• Service assurance and control applications. Today's service awareness, shaping and delivery systems have their own management systems that allow providers to tailor each device's functions, but it's very difficult to quickly deploy services that involve coordination among several of these systems. With a programmable service control platform that can instantly define services from end to end, however, it becomes possible to run and manage service applications from a single point in the network. Providers will want a suite of the most popular service control applications on hand so they can quickly respond to requests for services.

• Programmability. As awareness of customer usage patterns reveals opportunities for new services, providers will want to move beyond prewritten applications to create new ones. As a result, the service control platform should have an object-oriented development environment that eases the creation of such new applications.

Reducing capital and operational expenses

Service providers are changing from transport-centric to service-enabled networks, adding such services as VPNs, firewalls and URL filtering. But delivering such services with an appropriate level of quality for every subscriber means adding multiple load balancers, edge routers, IP service switches, aggregation platforms, bandwidth shapers, billing probes and other devices. All of this gear contributes to rising capital costs, rising integration costs, and higher operational costs. Most of the time, providers are so busy making it all work that there's no time to think about how best to use bandwidth or how new billing schemes might reduce churn.

There are three requirements for escaping the cost spiral:

• Integrated service and control. In today's networks, provisioning and billing for services requires as many as a dozen discrete devices, each of which must be individually managed and controlled. With an integrated service control platform, providers could unify service control and awareness functions in a single device, essentially adding a service control layer to their networks above the transport hardware. Ideally, the service control platform should be able to monitor network traffic at the application, content and subscriber level, and it should be able to do so at wire speed. By controlling service levels and capturing usage information from a single point in the network, providers can avoid recurring costs to manage and configure multiple discrete systems.

• Drop-in integration with existing network infrastructure. The integrated service control system should be a transparent layer that does not disrupt existing systems.

• Standards-based integration with existing back office systems. The service control system should integrate easily with existing billing, mediation and other back office systems to minimize the cost of linking service control to revenue applications.

Differentiated and customized services are the key to customer stickiness in broadband access, and service awareness and control are the basic requirements for providing those services. With centralized service awareness and control, service providers can understand how their customers are using the network, develop new services based on that knowledge and allow customers to choose exactly the services they want and need. In considering service control solutions, providers should look for performance, drop-in integration and above all, the programmability to support rapid deployment of current and future services.

By analyzing customer usage at the application and content level, providers can truly understand subscriber needs so they can tailor services more effectively. By controlling services from a single point in the network, providers can quickly roll out premium service packages that bring additional high-margin billing. And by quickly rolling out the services their customers want through self-provisioning and service applications, providers can increase customer satisfaction and stop the churning to get to profitability faster.

Milind Gadekar is Vice President of Marketing for P-Cube Inc.

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