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Retention and growth in emerging markets: what are the options?

Pankaj Agrawal, Associate Director of Analysys Mason, weighs up the options available to operators for sustaining growth in emerging markets...

Operators in fast-growing emerging markets are under constant pressure to balance market share expansion with profitability, making service relevance and integration critical to driving incremental revenue growth and improving customer retention.

Operators in fast-growing emerging markets are under constant pressure to balance market share expansion with profitability. While there is an expectation that they will expand their subscriber share continuously, their high-ARPU and high-profitability user base is under sustained attack from new entrants as well as existing competitors. This threat is especially severe because of the concentration of the user base and profit pools: in emerging markets, such as India, the top 9% of subscribers are estimated to contribute about 29% of revenues and 45% of EBITDA margins, as shown in the chart above. 

Therefore, critical issues for operators in such emerging markets include:

  • retaining high-end subscribers, especially following the introduction of changes such as mobile number portability
  • increasing revenue from mid-end subscribers by up-selling and cross-selling services, and optimising tariff plans.

However, traditional retention mechanisms and revenue enhancement have had limited success.

To reduce churn, operators in emerging markets, such as India, have been working with data warehousing and business intelligence models. At an implementation level, initiatives include minor service enhancements, such as occasional personalised gifts and co-branded rewards programmes. However, the success of these initiatives will be tested significantly once mobile number portability is introduced. Competitive offers from new entrants are expected to include bundles of smartphones and value-added services, along with committed customer care and empty networks, which could very well be a strong incentive to churn.

On the revenue growth front, operators have long searched for a ‘killer application’ to drive non-voice revenues. However, with the exception of a few markets, such applications and services have been elusive. As a result, operators are now focusing on increasing the penetration of simple non-voice services, such as caller tunes, by offering flexible billing options and improved service discovery. Stickiness remains a challenge though, with customer churn rates on some value-added services reported to be as high as 30% per month.

So what can be done to address these two important issues of retention and revenue growth? With 3G addressing access network quality and speed, the relevance of services as well as multi-screen integration could help significantly in increasing incremental revenue and reducing churn. Operators deploying search and discovery platforms, which provide recommendations and relevant content based on subscriber profiles and usage patterns, can help drive content consumption, user engagement, conversion rates and advertising revenues across multiple screens. Some of these platforms have already reported an increase of 30–40% in value-added service revenues for operators. With the introduction of high-speed access networks, multi-screen experiences and relevance could very well be the ‘killer applications’ that operators have been searching for to increase both ARPU and stickiness in emerging markets.