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Superfast broadband can directly reduce churn rates, survey of consumers in Europe and the USA reveals
Article by Analysys Mason Principal Analyst Martin Scott
Offering superfast broadband speeds to all customers could reduce annual churn rates by 3 percentage points per annum
If you ask 6610 consumers in Europe and the USA what one thing they will look for in their next fixed broadband service, most of them will say 'a cheaper service'. However, 14% of respondents in our multi-country survey who intended to leave their fixed broadband service provider in the next 6 months said that the reason that they were leaving their current provider was not price, but because their current service was not fast enough. This might not sound like a significant proportion of respondents, but if a typical operator had a monthly churn rate of 1.4%, the impact of upgrading those customers to higher speeds could reduce this to 1.2% per month - the equivalent of a 3% annual increase in the customer base (or a 3 percentage point reduction in annual churn). By comparison, this is around twice the annual subscriber growth rate of major European operators such as Deutsche Telekom or Telefónica in their domestic markets, and comparable to that of Orange in France.
The relationship between fixed broadband service speeds and intention to churn is clearly illustrated in Figure 1, which shows respondents who intended to change fixed broadband provider, by their current service speed.
The trend is consistent across all of the European countries in our study: fewer higher-speed respondents intend to churn. In the USA, a greater proportion of higher-speed customers intended to churn, but this could be because of the low take-up of high-speed services in this country, which led to a small sample.
The superfast broadband price premium appears to be less important to take-up than absolute price and availability
Research in the report reveals that customers who take higher-speed broadband services are both more satisfied and less likely to churn than their peers with lower-speed services. The results also suggest that some customers would like higher speeds - possibly because they believe that higher speeds would make them more satisfied.
Price elasticity naturally affects take-up. However, we could find no relationship between the price premium on superfast services and take-up in the survey countries. This is probably because:
- the availability of higher-speed services is limited in geographical terms (for example, the footprint of superfast broadband is restricted)
- price competition for non-superfast broadband drives the price down, so the superfast price premium can be high but still affordable for consumers
- superfast is driven by both operator and demand-side factors.
The market conditions for generating incremental revenue from superfast broadband vary by country. Retail price premiums for connectivity will be difficult to sustain - higher speeds will primarily work as a customer retention strategy. Operators could, and should, make more of value-added services as part of superfast offers. These issues are all analysed in further detail in the new report The Connected Consumer Survey 2013: fixed broadband retention and upsell (http://www.analysysmason.com/en-GB/Research/Content/Reports/CCS-fixed-broadband-Jun2013-RDMB0/)
Link to article online: http://www.analysysmason.com/About-Us/News/Insight/Superfast-broadband-churn-reduction-Jul2013/
A graphic to accompany this article is available on request: Figure 1: Intention to change fixed broadband service provider within 6 months, by downstream broadband speed and country [Source: Analysys Mason, 2013]
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