There are many reasons for a mobile user to switch mobile service to another operator. While poor customer service and price are usually cited as key factors in driving customers away, simply losing a handset can be another less appreciated factor pushing up the churn rate.
'Anytime someone loses their handset, they would have to go out to the market to buy a new handset, and thus will be exposed to new rate plans and new operators,' says Daniel Currie, president and CEO of Asurion Asia Pacific, which provides wireless handset and device protection programs to mobile operators.
In fact, phone loss has become a disruptive event in the wireless industry, and more operators are beginning to realize just how serious a lost or stolen phone can be.
Some mobile operators have turned to offering handset insurance programs to their subscribers for free or as a value-added service in a bid to boost customer satisfaction and reduce churn.
Targeting VIPs
South Korean mobile operator KTF, for instance, has partnered with Asurion to offer a handset insurance program since late 2003. Back then, the competition in the country's mobile market was intensified due to the prohibition of handset subsidies and the introduction of mobile number portability. The number of handsets lost or stolen hit 4.5 million phones in 2004, up 27.8% from the previous year.
Currie says KTF, which is Asurion's first customer in Asia, initially offered a handset insurance program to its VIP customers for free for the first three months, covering such things as lost or stolen handsets, technical difficulties and water damage. The company later extended it to other subscribers as a value-added service at an average price of $2-$3 per month.
Currie says, KTF has since bundled the program as a free offering with some of its low-end monthly plans at $15 and $20. In addition to KTF, NTT DoCoMo and Far EasTone have also introduced similar handset insurance programs in Japan and Taiwan.
Far EasTone, which launched a program earlier this year, offers a three-month handset insurance service free to customers who buy a new handset and extended it to other customers in November at a cost of NT$149 ($4-$5) per month.
In Japan, DoCoMo started offering insurance to its 3G FOMA subscribers as a means to reduce churn amid the implementation of mobile number portability. Despite the fact that there are less than a hundred thousand subscribers signed up for the program, Currie says the operator views it as a positive result, especially in measuring customer satisfaction.
One key point is that the program requires little investment from operators because Asurion maintains its own call center and logistics operation to administer the insurance services and to process claims, Currie says.
Locking in the customer
Although different operators ask for different features to be included in the program, the bottom line is to cut costs, reduce churn and increase customer satisfaction.
One of the key advantages of introducing a handset insurance program is that it allows cellcos to lock-in existing customers in the event of a lost or stolen phone.