TORONTO – Reducing churn through much-improved customer service should be the top priority for newly minted Rogers Communications CEO Guy Laurence, according to a recent analysts report circulated on Bay Street.
“We believe improving customer service is an important strategic priority at Rogers, perhaps the most important priority,” wrote BMO Capital Markets telecom and media analyst Tim Casey. “Among the national wireless incumbents, Rogers’ operating metrics have been underwhelming. Specifically, it has the highest churn rates and a declining ARPU profile. Combined, they translate to deteriorating customer lifetime revenues and value at Rogers. We expect new CEO Guy Laurence will have a primary focus on improving these critical operating metrics.”
After starting work in December, Laurence has kept a pretty low public profile (although we hear his new intra-corporate blog is a must-read inside Rogers), spending his four-plus months in the top job travelling from coast to coast, meeting well over 10,000 employees in call centres, going on news shoots, through TV and radio studios, cable headends, and so on. He met informally with various folks (including the media) during the Toronto Blue Jays home opener last Friday and said he has travelled more than 20,000 kms since he started as CEO.
So, he should have a very good grasp on the scope and scale of Rogers at this point – and what it needs most and first. As he noted in February during the company’s fourth quarter conference call with financial analysts, Laurence plans to have a report for the board of directors in May about what he wants to do. That said, one would expect he may have some preliminary thoughts during the company’s first quarter 2014 release on April 21st and its Annual General Meeting on April 22 in Toronto.
“I’ll outline a detailed strategy and business plan road map and agree that with the board in May,” Laurence told the analysts in February. “After that, we’ll start to operationalize it with my management team and we’ll articulate that more broadly to you with the specific priorities and focuses and what we’re going to be doing going forward.”
"Improving customer service and churn metrics are differentiating factors and fixable issues. That said, it seems to us that these challenges are deep-seated and not quick fixes." – Tim Casey, BMO
For Casey, however, the specific priorities from a Bay Street (and Main Street) perspective are pretty clear. “Canadian wireless carriers can not or do not materially differentiate their services based on network coverage, performance, handsets or pricing,” he wrote. “Therefore, improving customer service and churn metrics are differentiating factors and fixable issues. That said, it seems to us that these challenges are deep-seated and not quick fixes.
While noting Rogers will be aided by a time-to-market advantage for the next year or two in deploying LTE on 700 MHz spectrum ahead of its rivals, it’s not known if customers or potential customers will recognize a better network experience enough to make a difference in retaining “particularly the ‘higher value’ subscribers – to justify the premium paid for the spectrum,” says Casey’s report.
Rogers bought two adjacent paired blocks of 700MHz spectrum (2×20 MHz) with a handset ecosystem which is already set, available and popular. The handset ecosystem to serve the 700 MHz spectrum bought by Telus and Bell is thought to be 12-24 months away from being ready.
However, as wireless carriers in Canada shift from customer acquisition to customer retention mode (slower customer growth occurs naturally as a majority of people now have a wireless phone), the fact that Rogers has the highest churn rate of the Big Three is really hurting the company, says Casey.
According to the Commissioner for Complaints for Telecommunications Services, customer complaints for Rogers and its Chatr and Fido brands are on the rise. “By contrast, Telus has seen reported telecom-related customer complaints decrease in the last two years (with the CCTS) and ranked highest amongst the Big Three (in a J.D. Power report). With ~60% of its performance bonus pool linked to customer service, Telus has set the high-water mark for the Big Three in terms of adopting a customer-friendly culture and executing on customer-centric initiatives,” writes Casey.
While higher churn shows a higher level dissatisfaction among customers, it also means more calls to call centres and other actions the company must undertake, which erodes the average revenue per user earned – and drives up costs. “Churn and ARPU trends can be highly interrelated. We believe that a key driver of Rogers’ ARPU erosion has been the loss of ‘higher value’ customers (i.e., lower churn and higher ARPU) to Bell and Telus,” says Casey’s report. “By ‘higher value’, we largely refer to enterprise customers and higher data users (i.e., iPhone users).
“If not contained or managed properly, any churning of higher value customers can also lead to a deterioration of other operating metrics in a virtuous cycle (i.e., lower ARPU from dilutive impact of losing a high-ARPU customer, higher [cost per gross addition] to aggressively acquire new customers, higher [cost per user] to deal with greater call center volumes and aggressively retain existing customers) and, in turn, financial performance,” writes Casey.
The Street – and Mr. Laurence, for that matter – acknowledged RCI’s 2013 performance did not measure up to its peers and that steps needed to be taken. “While there are areas of strength overall, they are not satisfactory to me and over time I expect to do better,” the CEO said in February of his company’s 2013 results.
"Lower churn pressure will free up resources across the enterprise, be they customer service and/or call centre assets, promotional discipline and management resources." – Casey
That said, Casey’s research insisted an improved customer experience would lead to lower churn (Rogers is at 1.34% compared to Telus’ 0.97% in the report) and improved financials at the company. “Estimating the financial impact of lower churn is complicated by the myriad revenue and cost metrics it impacts. That said, a back-of-the-envelope analysis suggests a 25 (basis point) reduction in blended churn at Rogers (implying a reduction in current blended churn to a level in the range of industry leader Telus) would generate (or perhaps retain is the more appropriate term) roughly $100 million in annual revenue,” reads the research.
“While that may seem immaterial, it is worth noting that (1) most of that revenue should drop to the bottom line, (2) will compound each year, and (3) is only a starting point. Lower churn pressure will free up resources across the enterprise, be they customer service and/or call centre assets, promotional discipline and management resources.
“For perspective, an incremental $100 million in operating profit – once again, a conservative impact in our view – represents a ~3% increase on current wireless cash flow. As to timing, we believe this would be a multi-year process.”
Now we’ll have to wait and see what Laurence tells his customers, his board, the Street and the public over the coming months.
