Ah….. the fourth quarter. One of the top two times of the year for wireless sales; the other is Tax Time for prepaid in March/April which I could never understand; the first thing that people do when receiving their tax refund is to run out a buy a new cell phone? More on that in 2022.
With Thanksgiving/Black Friday and Christmas/Hannukah/Kwanza upon us, the offers from carriers, MVNOs, and just about everyone else are all very enticing. But with 353.8 million cell phones in use in the United States in January of 2021, and a current population of 332.9 million, just where are these new activations coming from?
Obviously, a “new activation” has to come from somewhere. Yes, there are parents who are adding their child’s first phone to a family plan, and some with multiple phones, but my research leads me to believe that new activations are also coming from either false churn or porting.
False Churn is a Carrier’s Nightmare
Let’s look at false churn. I have written before and as someone who built out the indirect distribution for two national carriers in the New York Market, I have seen firsthand that false churn is driven by multi-carrier dealers who have secured their activation commission. This is primarily prevalent in the prepaid space. It is in the nooks and crannies of urban areas where cellular phone stores are on every block.
Call them Mom & Pop dealers, bodegas, or “onesie-twosie" dealers that offer multiple brands of SIM card-only sales, this is where the gaming often takes place. For example, activation commissions for prepaid are often paid out to the dealer in three to four months of service. Let’s say as a dealer, I receive 200% of the monthly recurring revenue (MRC) and my customer selects a $50 rate plan. I would receive a $100 commission broken up with $50 in month one, and $25 in both months two and three if the customer stays active. If they cancel or disconnect at any time before 90 days, I don’t get the remaining commission due.
As we know, many customers come back to the place of purchase to pay for their next month’s service. If it’s after the commission vesting period, there is nothing to stop a dealer from inserting a SIM card from an MVNO on the same carrier into the phone and getting a new commission. Yes, I have personally witnessed dealers telling the customer that they are putting a new SIM in their phone and that there is nothing to worry about as the cost and network are the same, just a different name will appear on the screen. MVNO #1 loses and MVNO #2 gains a new subscriber…….. at least for the next 90 days. And of course, the dealer gets a new commission.
What’s Wrong With Porting?
Porting out, or changing carriers is a legitimate way to choose a service that better meets your needs vs. the carrier that you are currently on. It could be coverage issues, price, a lousy experience with customer service, or a host of other factors. So much so that the Federal Communications Commission (FCC) mandated cooperation from all carriers and a one business day completion of simple ports. Also, a new phrase was born; “Keep Your Same Number!”
We are getting bombarded with offers to “switch” and carriers are offering up to $1,000 per line to pay off what you may owe on your current phone.
And here’s where the small print comes in. Remember two-year contracts? T-Mobile did the Un-Carrier thing and eliminated two-year contracts (and were followed shortly after by AT&T and Verizon). Some genius in their marketing department went to the finance guy and said, “I have a great idea…… no more two-year contracts but let’s have the customer pay for the phone in twenty-four months and if they try to leave us early, we don’t allow the port until they pay the off the balance!” And poof!!!!, an entire cottage industry was born. Third-party finance companies like SmartPay, Progressive Leasing, and others are thriving and carriers and MVNOs are making claims in their offerings that sometimes seem to be too good to be true. For example, a free iPhone 13 is really a charge on your bill for twenty-four months offset by a corresponding credit…. as long as you stay on for two years, or buy out the remainder of your handset balance.
I recently ported two lines to Verizon. They offered a $475 Verizon gift card for each line. They were very clear that this was a Verizon Card, not a Visa Card and good only for Verizon goods and services. Kudos to the Big V! Then I saw an offer from one of the MVNOs, whose headline blared out, “100GB FOR ONLY $1.00!”
I will admit, the print underneath was not small and it said, “for your first month of service,” but the real small print said that the plan would renew at $50 per month and adjust to 50 GB.
A CEO of a well-known MVNO once told me “Unlimited (data) does not mean unreasonable.” In their small print was the disclaimer that their “unlimited plan” was, in fact, limited. The point is, make sure that you, as the MVNO, are being clear in your message so you don’t experience customer dissatisfaction and have customers canceling or porting out. Remember, it costs you a lot of money to acquire a subscriber and you need them to stay active to make a profit, whether they are pre or post-paid. Third-party financing as outlined above is a great way to offer high-end handsets to all types of customers and is just one more tool that you have to pleasantly serve your customer’s needs.
Honesty is the Best Policy
The bottom line for any retailer or customer-facing company is, to be honest, and set the proper customer expectations. You and your teams work too hard to get unhappy customers or get slammed on social media. Don’t let the small print bring you down!