Wi-Fi As A Churn Reducer
By Mike Masnick, Mon Nov 01 22:15:00 GMT 2004

A few telcos appear to be realizing that Wi-Fi isn't a business by itself, but does have great potential to reduce churn for other services.

When your competition is free, it should come as no surprise that you need to come up with a slightly more advanced business model if you want to stay in business. However, many in the Wi-Fi hotspot business have continued to move forward in the belief that somewhere, somehow these mobs of credit card-wielding, laptop-toting, coffee-drinking young executives would make their business models make sense. While some coffee shops and restaurants claim they've been able to make a good return on free Wi-Fi, by attracting new customers, where does that leave the telcos? They know they want to play in the Wi-Fi space, but they're not likely to get people to pay much for it and they're not going to sell an extra cup of coffee with it. However, what they are realizing is that it will keep existing customers -- and that's absolutely worth the price.

The telco world, of course, is facing new levels of competition from all sides. Cable companies are hitting them with triple play offerings, while both mobile operators and VoIP providers are stealing away voice customers. Other competitors are on the horizon. All this competition isn't easy to digest -- especially as many of these telcos come from government sanctioned monopolistic roots. Add in things like local number portability and it's something of a perfect storm for telcos to find that their captive audiences are anything but. One of the biggest issues for telcos these days is "reducing churn." Acquiring a customer is expensive. Keeping a customer for a long time is how the telcos repay the cost of acquiring each customer. If customers feel they can switch operators with wild abandon, something breaks down very quickly with this model.

It's looking like it may be Wi-Fi to the rescue. The trend started off, innocently enough, over a year ago when Verizon decided it might as well do something useful with all those useless payphones in Manhattan, and put Wi-Fi access points on them for free use. The only catch? You had to be an existing Verizon DSL customer. The results became clear very quickly. Verizon DSL customers suddenly had a valuable feature included in their service that they could only get from Verizon. It wasn't long before Verizon admitted that, within Manhattan, the free Wi-Fi had reduced churn by 2% -- which more than paid for the efforts. In fact, Verizon admitted that a simple 0.6% reduction in churn would have made the experiment profitable. It appears others took notice. A few weeks ago, SBC announced a plan to offer its fairly noticeable network of Wi-Fi hotspots to its DSL customers for $1.99 per month. At that price, it's barely noticeable, but if it reduces churn for SBC DSL, it quickly will become a big winner for the company.

Over in Europe, however, today's news may be even more surprising. European hotspot providers have been slammed repeatedly for extremely high prices compared to the rest of the world. Meanwhile, just last week a report came out saying that, as added insult to injury, the pricing plans for European Wi-Fi were way too complex -- scaring off many potential users. However, today, BT announced that it will be opening up its Wi-Fi hotspots to DSL customers for 1 a month. It's not quite as nice as the SBC offer, and it does have some limitations (which might go back to that "complexity" issue). The 1 a month offer is only for three months -- and it only provides you with 500 minutes of Wi-Fi. That's enough for many, but may not satisfy all. After three months, the price goes back up to 5 a month, which is still quite a bargain considering BT charges 6 an hour right now. As other providers around the world realize that they're simply not making any money selling Wi-Fi directly, but others are making much more by not losing customers, expect similar offerings to appear quickly. Who knew that reducing churn could be so useful for everyone?