Operational efficiency benchmarking & end-user research show:

Smartphones bring network quality back in fashion

Key to customer loyalty and profitability
Recent end-user research done by Telenor in Norway shows that the importance end-users assign to network quality has increased with the shift of focus from voice to data:
When people are increasingly using mobile phones for a diverse range of network services, they demand network access and a good user experience at all times anywhere they go. Coverage and quality take on a new meaning entirely.
From Telenor press release 24 March 2011

Telenors statement above resonates well with the findings from the latest Nokia Siemens Networks end-user research on customer loyalty. According to this global study, done in June 2010, the most important factors for customer retention are the ones shown in Figure 1.
17% 15%

Impact on retention (% of total)

13% 9% 9% 7%
6% 6%

5%

5%

4%

4%

Network coverage

Device portf olio

Calling costs

Voice quality

Cost control

Mobile data & internet costs

Contract

Handset costs

Calling plans & rate structure

Figure 1. Most important loyalty drivers for 14697 mobile respondents globally.

Summing the three purple categories in Figure 1 gives that 34% of the total importance for customer retention is network quality related. We expect that the new customer retention analysis in 2011 will show a yet higher percentage to network quality overall as the smartphone penetration has increased significantly globally since June 2010. So the most important driver of loyalty if you ask the customers is network quality. Differently put, the most common reason to churn is poor network quality.
This brief paper is brought to you by the operational efficiency benchmarking team in Nokia Siemens Networks. Please email us at efficiency.benchmarking@nsn.com or visit http://www.nokiasiemensnetworks.com/portfolio/operational-efficiency-benchmarking 28 March 2011

Request & complaint handling

Messaging & internet quality

All other drivers (<3% each)

By using results from Nokia Siemens Networks operational efficiency benchmarking, we can compare churn with network quality:
140%

120%

100%

Blended churn (annual)

80%

60%

40%
R = 0,0955

20% Low quality 0% 0 100 200 300 400 500 600 Average voice minutes between drops High quality

Figure 2. Blended churn vs. average voice minutes between drops. Unfiltered data from the latest 27 benchmarked operators in Nokia Siemens Networks operational efficiency benchmarking.

Churn is market specific disturbing the comparability, but some correlation could still be seen in Figure 2 suggesting that operators with higher voice quality tend to have lower churn rates. The question is whether operators should be concerned since all operators experience some churn. Yes, since a correlation does exist between churn rate and EBITDA margin (Figure 3) even if, as said, churn is market specific:
60%

50%

40%

EBITDA margin

30%

20%

10%

R = 0,2608

0% 0% 10% 20% 30% 40% 50% 60% 70% Blended churn rate (annual)

Figure 3. EBITDA margin vs. blended churn. Reported FY 2010 data from 200+ mature market operators collected by Nokia Siemens Networks. This brief paper is brought to you by the operational efficiency benchmarking team in Nokia Siemens Networks. Please email us at efficiency.benchmarking@nsn.com or visit http://www.nokiasiemensnetworks.com/portfolio/operational-efficiency-benchmarking 28 March 2011

Through these two charts, the following chain is thereby made very likely:
High network quality High EBITDA margin

Low churn

Summary and conclusion There is and has always been a link between high network quality, low churn and high EBITDA margin. The increasing penetration of smartphones not only led to more data traffic in the networks but radically changed end-user behavior. Smartphone users want their data applications to be accessible 24/7 regardless of location. They require more coverage, higher network quality and higher data speeds. Since smartphone users are bringing the highest revenues to operators, it is imperative for operators to satisfy their requirements for network quality otherwise they will vote with their feet and churn. Smartphone users are the most expensive for an operator to acquire. Consequently, the revenue loss that accompanies churn and acquisition costs needed to make up for the lost subscriber have a very negative effect on EBITDA margin. Even if most smartphone users are acquired on longterm contracts, it is still not satisfactory to lose them when a contract expires. Smartphone users are influential; their sentiments (positive and negative) will spread to others no matter what.

This brief paper is brought to you by the operational efficiency benchmarking team in Nokia Siemens Networks. Please email us at efficiency.benchmarking@nsn.com or visit http://www.nokiasiemensnetworks.com/portfolio/operational-efficiency-benchmarking 28 March 2011