The changing mobile model

Mobile plans have traditionally had a similar approach to acquisition and retention of customers as ISPs, with high costs for service providers at the start of a minimum-term contract.

“Operators spend on average €200 to acquire new smartphone customers – as subsidies on handsets and other rebates – and you lock them in for two years,” said Fredrik Jungermann, analyst at mobile research firm tefficient.

However, being locked in doesn’t breed loyalty and means operators are obliged to spend a lot, which takes time to recoup. Increasingly in the US and with SIM-only services in the UK, those models are changing and bringing surprising results for churn rates and customer satisfaction.

Instead of regularly changing suppliers in the search for a better deal or new handset, customers are staying with their carrier, provided they are happy with the service. In many ways, having a contract date to re-lock a user can act as a deadline to leave – so actually works against the company.

“Instead of taking a contract, you have freedom and because of the freedom you get a lower rate – lock-in and loyalty are different,” said Jungermann. “When they switched from the old model of lock-ins to monthly then you could see the churn level went down not up – you’d think people would churn quicker but it was actually the opposite,” he said. “With the old model, you’re reminding the customer that there is competition and maybe they should churn.”

This model means they don’t have to make increasingly costly offers to keep customers and leads to lower prices for consumers. Who knows? That might just work for ISPs.