Solid subscriber results for wireless carriers, acquisition/retention spending up last year

Canada’s three national wireless operators spent more money on acquiring and retaining customers in 2005, meaning the battle for the all-important customer appears to be getting more difficult. Although Bell Mobility acknowledged it had to deal with the fallout from 2004 billing problems which led to customer retention and acquisition troubles, Rogers Communications Inc. and Telus Corp. noted there were other factors contributing to their increased customer acquisition and retention costs. Telus CFO Bob McFarlane admitted during the company’s fourth quarter and year-end financial and subscriber results conference call that it increased its media spend during the fourth-quarter, noting that Telus had to respond to some competitive offers in the marketplace. "I think as well in the quarter there was a bit of a tactical shift led by some of our competitors to point of purchase promotions which we responded to later in the quarter," he said. "So whether those types of promotions and activities continue, I’m not sure. They’re typically associated with a Christmas type of promotion season, so it’s hard to predict the dynamic and interplay between competitors. But I think you should see a return to normal levels in our organization on the wireless front." McFarlane suggested despite the negative impact of the labour disruption, the company received good value for that increased spend. "From that standpoint…we are quite pleased with the efforts. There’s an experimental aspect to it: you’ll take it up or take it down and see what the incremental change is, so you can be sure that you’ve got the right correlation factors and therefore are spending at the right levels," he said. Rob Bruce, president of Rogers Communications’ wireless division, highlighted a few factors in the company’s increased spend on customer retention activities: handset replacement for Fido subscribers, promoting longer-term contracts with existing subscribers, and using higher-end devices to retain customers. He singled out the use of Motorola Inc.’s RAZR and ROKR handsets as a way to maintain and acquire profitable customers. "We believe we skimmed off some very good-quality customers in the fourth quarter…and I think the success of that spending has been realized when you look at our churn numbers," he said. "Prior to buying Fido, they hadn’t done much handset upgrading with their base, so we’ve invested over the course of the year to ensure that that base is upgraded because we know that has a tremendous positive on churn," he explained. Rogers has also undertaken a plan to shift more customers from being on one- and two-year contracts to two- and three-year contracts, "which has also driven up the retention spending," Bruce added. The Rogers executive suggested that retention spending should level out, even faced with the prospect of wireless number portability next year. "We’re going to be taking a pretty hard look at higher-value customers and try to stagger our spending on retention higher-value customers and make sure our dollars are spent as efficiently as possible," Bruce said. Robert Odendaal, president of Bell Mobility and Bell Distribution Inc., said the 2004 billing problem caused higher churn, "particularly of higher-value customers in the consumer and small business segments," and 2005 was a year of trying to deal with that fallout. "This explains why our post-paid churn was higher than usual and, for the fourth quarter, why our net mix was poorer than prior periods, why our ARPU growth was challenged relative to competitors and why we invested more in customer acquisitions to attract the right type of customers," he said during BCE’s 2006 business review conference. Challenges in higher customer acquisition and retention spending aside, the three national wireless operators are all moving forward with strategies of profitable growth and rational pricing, which appears to mean higher prices for consumers. Both Telus and Rogers were a little more guarded with their comments relating to price increases, while Bell Mobility said it was going to move prices higher. Odendaal noted that in addition to targeting higher-revenue customers, encourage more usage and leverage new revenue streams, the company is going to introduce new rate plans. "We will replace our consumer and business all-in-one plans. We will move the vast majority of our consumers to a 9:00 p.m. clock, with select price increases where the opportunity so exists," he said. The comments from Bell resonated with the other two carriers. Nadir Mohamed, president and COO of Rogers Communications, noted that the company continues to be a firm believer in rational pricing and that won’t change in the future. He added that the company has already made changes as a result of a review of current pricing plans and more changes are in the offing this year. "We really want to drive our pricing based on value and we think we’ve got a tremendous product to offer and we don’t really believe in deep discounted pricing as a sustainable way to grow value," he said. McFarlane concurs that rational pricing is the way to go, but took some pot shots at its rivals for using discounted brands in the marketplace. "We’re the only company operating without a discount brand in the marketplace, yet we actually led the industry in subscriber additions," he said. "So, I think that gives rise to the question about the effectiveness and efficiency of multi-branded approaches in the marketplace and whether they are really accretive to value in terms of having these discount brands." Highlighting some inconsistent pricing strategies in the market, McFarlane pointed a finger at Rogers Wireless. Until recently, the Fido discount brand, he noted, was always marketed as offering inferior coverage, but that has changed. "Now has the equivalent coverage on a digital basis through the whole Rogers network. So it’s the same handset, same coverage at a different price point in the marketplace. Obviously that type of tactic in the market isn’t necessarily one that promotes a disciplined response by the competitors. "So I think it’s going to be very important to see not only what Bell’s words are, but some of the other entrants in the marketplace, such as Rogers…behave. And in our case, we’ll act accordingly," McFarlane said.

Solid subscriber results for wireless carriers, acquisition/retention spending up last year

News | March 9, 2006

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