The Keys to Keeping Cell Customers

With price less of a factor, wireless providers are waging the battle to reduce churn with better call quality and customer service

For most people, losing a cell-phone connection is a bummer. But for Greg Clemens, a real estate agent in Portland, Ore., it's worse than that. Clemens often needs to negotiate contracts and talk with prospective home buyers on the go -- only to find that his service drops calls or garbles transmissions too often. "It has been extremely frustrating," he says.

Many wireless customer agree, at least some of the time. Only a handful gripe formally: The Federal Communications Commission received 3,901 complaints relating to wireless service providers in the second quarter, up 7% from a year earlier. But millions of customers vote with their feet every year, judging by how frequently they switch carriers. In fact, prices now vary so little that customers increasingly are choosing a provider based on call quality and customer service, says Martin Dunsby, vice-president for operations at wireless consultancy InCode Telecom in San Diego.

So at long last, cell companies are starting to focus intently on those two issues. One superficial indicator is the "Can You Hear me Now?" ad campaign of No. 1 provider Verizon Wireless, a joint venture between Verizon (VZ ) and Vodafone (VOD ), which has 36 million customers and is signing up new ones faster than any other carrier. The ad features a Verizon Wireless technician checking to make sure there are no dead spots in buildings and stadiums. More substantively, carriers are more efficiently and sensitively handling customer accounts, improving other aspects of customer service, and extending the reach of their networks.


  For companies that don't do so, the worst is yet to come: The wireless number portability (WNP) law that takes effect on Nov. 24 will let customers keep their cell-phone numbers when switching carriers. That will likely increase industry churn, already at 26% a year, by 20% or more, Dunsby figures. Improving call quality and customer service could dampen that effect. Recent surveys by J.D. Power & Associates indicate that only 7% of consumers at carriers with high customer satisfaction will switch in the next 12 months -- vs. 21% for carriers that rank lowest.

Longer term, quality will only increase in importance. The FCC could soon let users keep their numbers when switching from regular phones to wireless service. By 2007, 20% of U.S. households will use mobile as their primary service, up from 5% today, estimates Craig Mathias, founder of wireless consultancy Farpoint Group in Ashland, Mass. And they'll demand the same level of service they have with their regular phone.

The number of dropped cell calls has fallen from 5% a few years ago to less than 2% today, says Dave Murashige, a vice-president at telecom gearmaker Nortel Networks (NT ). But that's still worse than for wireline calling. And during the August blackout in the Northeast, most regular phones worked -- but many cell phones didn't.


  On one level, the effort to improve customer satisfaction involves common sense more than capital spending. Until recently, one national service provider's financial system automatically sent to collection agencies the accounts of customers whose payments were two days late or who owed only three cents on their bills, says Andrew Cole, an analyst with wireless consultancy Adventis. Needless to say, many such customers switched. Now, that company simply carries the charges over to the customer's next bill.

Improvements in customer-service response time are another area of focus. Anticipating a barrage of calls after Nov. 24, No. 2 carrier Cingular, a joint venture between Baby Bells SBC (SBC ) and BellSouth (BLS ), with 24 million subscribers, recently expanded its network of call centers to process customer queries more efficiently.

No. 5 carrier Nextel (NXTL ) has hired IBM (IBM ) Global Services to improve its customer service. Starting 18 months ago, IBM installed custom software at Nextel's call centers to keep tabs on which customer-service reps couldn't answer which kinds of questions. Supervisors now use the statistics to train employees, says Dean Douglas, vice-president for the telecom industry at IBM Global Services. Such coaching cuts the number of calls agents transfer to their more knowledgeable colleagues -- and helps answer customer inquiries faster. IBM also set up a more convenient self-service phone menu that lets customers resolve more issues without talking to a person.


  Such changes have already cut Nextel's customer-care costs by one-third, Douglas says. More important, the system helped reduce its churn from 1.6% to 1.4% a month -- by far the industry's lowest. It has also raised Nextel's ranking from below average in customer service to the No. 1 spot it now shares with Verizon Wireless in most regions of the country, according to J.D. Power.

Personalization can enhance the customer experience as well. No. 3 U.S. carrier AT&T Wireless (AWE ) uses speech-recognition software from privately held Tellme Networks in Mountain View, Calif., that identifies the caller's number, then dips into the carrier's database to check whether the person is an existing subscriber. (Within 12 months, the system will greet the subscriber by name, promises Tellme President Mike McCue.) The software then tries to speed up the inquiry by guessing why the customer is calling and offering help: For instance, after first signing up for the service, many people call for help with setting up their mailbox.

Tellme's software also includes an address-book feature that lets customers issue voice commands, such as "call mom at home." And by dialing *121, they can get stock quotes and news bites via voice, buy movies tickets, or get driving directions. Similar services provided by live humans cost $5 a call vs. 10 cents with Tellme, says McCue.


  Other service improvements require significant spending: The industry forked over $4.3 billion in the third quarter, up from $1.3 billion in the second, even though No. 4 Sprint PCS (PCS ) and T-Mobile, a subsidiary of Deutsche Telekom (DT ), are still losing money, while the other four among the top six carriers -- Verizon Wireless, Cingular, AT&T Wireless, and Nextel -- are all believed to be in the black. With newcomers like Virgin Mobile and Boost Mobile marketing prepaid plans to teens, stealing customers, and driving down prices, such investments are likely a must for staying in business.

Among other things, carriers are spending to improve call quality within buildings, such as at airports and malls. They're buying gear like that sold by privately held LComm in Ontario, Canada -- antennas attached to coaxial cable that can be placed throughout hospitals and warehouses to provide uninterruped calling coverage, says Michael Brunet, a partner at LComm. Depending on the layout, the system costs as much as 25% less than wiring the same area with Wi-Fi, a high-speed wireless networking technology that's less reliable, he says.

To enhance call quality in suburban and rural areas, service providers are buying cellular camouflage gear: fake traffic lights, cactuses, church steeples, and palm trees that are really cell antennas. Sales at privately held Larson Camouflage in Tuscon, Ariz., which sells artificial palm and pine trees to the top six U.S. carriers, have increased 50% this year vs. 2002, says Steve Meyer, Larson's business development manager.


  To pinpoint dead spots, many carriers are also deploying special software that recreates the customer's experience by placing hundreds of calls an hour and measuring sound quality, says Dunsby. And InCode is busy helping service providers figure out where their most valuable customers -- such as business users -- require access, so that the carriers can first improve coverage there, Dunsby says. On the short list are railroad stations and courthouses, many of which are 100 years old and have thick walls that wireless signals can't penetrate.

Of course, shareholders and investors will likely look unkindly on sustained increases in carriers' capital spending, say analysts at telecom consultancy RHK. And many cell companies argue that customers who switch service providers after Nov. 24 will be disappointed, since the call quality of most cell carriers is roughly equivalent, even though customers' perceptions differ.

What's clear, though, is that today cell service is still falls far short of perfection. And with the increasing customer focus on quality, no carrier can afford to aim lower than that.

By Olga Kharif in Portland, Ore.

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