1

Drivers of Customer Churn in Wireless Telecom

2

2

Destination

• Customer churn occurs in telecom when a customer discontinues its contract with its cellular service provider. Usually, the customer is switching to a competitive service. Customer churn is a tremendous drag on wireless telecom companies. For Alpha Mobility, a mere -.1 basis point reduction in annual churn is worth $140M in operating income.

• This analysis will focus on the impact and role that Alpha and competitive media plays in driving churn over time and provide guidance for Alpha Mobility to minimize churn going forward through more effective media messaging strategies.

• The major focus of this analysis will be to address which kind of media messaging reduces churn. This pertains to two types of advertising messages. One is “network messages”, which are ads extolling the quality of a brand’s wireless network in terms of speed, coverage or other performance areas. The other is :non-network messages, which might be phone ads, price/value and promotion ads or ads selling some form of wireless cellular plans like data plans or family bundle plans.

3

3

Model Architecture

Network Message GRPsNon-Network Message GRPs

NationalMedia

CompetitiveMedia

Beta Corp. GRPsGamma Corp. GRPs

Seasonality

Market Pooled Dummy Var.

Churn Jan05-Mar07 Region(4)

Model architecture was a multivariate model pooled by market within region (4

models), from Jan05-Mar07, driven by national Alpha Mobility GRPs by message,

competitive GRPs and seasonality. Data source was Telephia Market-Metrics

monthly churn

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4

Hypotheses

Based on knowledge from gross adds modeling, we have a number of hypotheses to investigate

We know that network message GRPs are more effective in driving gross adds than non-network

counterparts. We therefore think that network message GRPs are also more effective at reducing

churn than non-network message GRPs.

Higher competitive GRPs increases gross adds of competitors and therefore increases churn for

Alpha Mobility. Because we know from research that Alpha Mobility has the highest rate of

switching with Beta Corp., we hypothesize that Beta Corp. media has a greater impact in

increasing churn for Alpha Mobility than other wireless carriers.

Because increases in media executions have a negative impact on gross adds, more media

executions likewise should have an unfavorable impact on churn. Because non-network message

executions have a stronger negative impact on gross adds than network message executions, we

also hypothesize that non-network executions have a stronger unfavorable impact on Alpha

Mobility’s monthly churn.

In Q1-07, Alpha Mobility’s churn rate increased as a result of a stronger decline in net adds than

gross adds. Because Q1-07 was accompanied by a very large increase in non-network message

executions, we hypothesize that this played a major role in driving higher churn.

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5

Decomposition Of Churn Impacts

3.1 2.72.2 2.7 2.7

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

NE SE CENTRAL WEST NATIONAL

NONNETWORK EXECUTIONS

NETWORK EXECUTIONS

AO CARRIERS GRPS

VERIZON GRPS

NONNETWORK MESSAGE GRPS

NETWORK MESSAGE GRPS

BASE

TOT CHURN

The NE region is most impacted by media, followed by the SE and Central region. Beta Corp.’s media has its largest unfavorable impact in the

Northeast. The West region shows the lowest overall media and churn causal link

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6

Q1-07 V. Q4-06 Churn Variance Drivers

-.07

+.33

+.14

+.10

+.04

-0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8%

NE VAR

SE VAR

CENTRAL VAR

WEST VAR

NATIONAL VAR

NETWORK TV

NONETWORK TV

Beta Corp. COMPETITIVE MEDIA

Gamma Corp. COMPETIVIE MEDIA

NETWORK EXECUTIONS

NONNETWORK EXECUTIONS

BASE MOMENTUM

Alpha Mobility’s churn increased +.14 in Q1-07, with the largest unfavorable trend occurring in the SE region. Overall, average weekly non-network message media executions increased from 3.7

to 8.3 over this period and was the largest factor driving this unfavorable trend in churn.

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7

Churn Impact Per 100 Alpha Incremental GRPs

-0.7%

-0.6%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

NE SE CENTRAL WEST NATIONAL-0.7%

-0.6%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

NE SE CENTRAL WEST NATIONAL

NETWORK MESSAGE GRPs NON-NETWORK MESSAGE GRPs

An incremental 100 GRPs of network message generates about 2x more churn reduction than non-network messaging. Alpha Mobility’s media has a

substantially greater relative impact in the NE region than other regions.

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8

Churn Impact Per 100 Competitive Incremental GRPs

0.00%

0.01%

0.02%

0.03%

0.04%

0.05%

NE SE CENTRAL WEST NATIONAL

0.00%

0.01%

0.02%

0.03%

0.04%

0.05%

NE SE CENTRAL WEST NATIONAL

Beta Corp. MESSAGE GRPs AO CARRIERS MESSAGE GRPs

An incremental 100 GRPs for Beta Corp. has a 4x greater and detrimental impact on Alpha churn than all other carriers’ GRPs combined. Overall, it

takes about 100 GRPs per week to counter the impact of competitive media

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9

Sensitivities To Media Message Executions Per Week

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0 5 10

NE

SE

CENTRAL

WEST

NATIONAL

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0 5 10

NE

SE

CENTRAL

WEST

NATIONAL

NETWORK EXECUTIONS PER WEEK NON-NETWORK EXECUTIONS PER

WEEK

Increases in non-network message media executions has a substantially more unfavorable impact on monthly churn than network executions. For network executions, there is a threshold where

more executions has a favorable impact on churn up to 4-5 per week, but an unfavorable impact

at higher levels

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Optimizing Media Mix And Executions To Minimize Monthly Churn

• Based upon our model, we have simulated weekly GRPs and media executions to minimize overall churn. The solution calls for reducing non-network executions from 8.3 to 4.2 and maintaining network executions at 3.2 per week. At 550 GRPs per week optimum, the mix calls for 58% network and 42% non-network message GRPs. The result shows a decline in average churn of -0.4 basis points

GRPS/WEEK CONTRIBUTION CURRENT OPTIMAL CHURN

NETWORK MESSAGE GRPS -0.3% 143 321 2.75%

NONNETWORK MESSAGE GRPS -0.2% 219 229 2.36%

EXECUTIONS/WEEK CONTRIBUTION CURRENT OPTIMAL CHURN

NETWORK EXECUTIONS 0.2% 3.2 3.2 2.75%

NONNETWORK EXECUTIONS 0.2% 8.3 4.2 2.36%

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Key Principles

From this modeling exercise, we have learned some key insights into how media impacts

monthly churn for Alpha Mobility

Alpha Mobility’s media ROI is driven not only by its ability to drive incremental gross adds, but

also in its ability to drive customer retention and lower churn. A 10 percent increase in media

GRPs generates about a $50M increase in operating income via reduced churn

Not all media messaging is equal in its ability to drive lower churn. Network message GRPs drive

about 2x more favorable churn reduction than non-network message counterparts.

Higher competitive media spending drives higher and less favorable monthly churn for Alpha

Mobility. Higher spending by Beta Corp., in particular, drives higher churn greater than all other

competitor media combined. This is especially true in Beta Corp.’s stronghold markets of the

Northeast region.

Not all Alpha Mobility markets are equal in terms of their sensitivities for media relative to churn.

The Northeast region represents the area where churn is most impacted by media and, thus, also

represents the greatest upside opportunity for reducing churn.

Higher media clutter in terms of higher media executions drives higher churn. Non-network

media executions tend to drive higher churn than network executions.

Alpha Mobility has the opportunity to drive lower churn with a more optimized media mix and

execution scheme. We recommend significantly lower non-network media executions and higher

average network message GRPs. The optimized plan is expected to drive -0.4 pts lower monthly

churn.

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Model Validations

• The following four charts show actual and modeled churn from the four regions. Overall R squared fits average over 90 percent and blind holdout fits over 98 percent indicate very robust models with excellent predictive capabilities.

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0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

'JAN05

MAR

MAY

JUL

SEP

NOV

'JAN06

MAR

MAY

JUL

SEP

NOV

'JAN07

MAR

MODEL

ACTUAL

Northeast Region Actual And Model

HOLDOUT

R 2̂=99.5%

OVERALL

R 2̂=91.2%

14

14

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

'JAN05

MAR

MAY

JUL

SEP

NOV

'JAN06

MAR

MAY

JUL

SEP

NOV

'JAN07

MAR

MODEL

ACTUAL

Southeast Region Actual And Model

HOLDOUT

R 2̂=98.9%

OVERALL

R 2̂=95.2%

15

15

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

'JAN05

MAR

MAY

JUL

SEP

NOV

'JAN06

MAR

MAY

JUL

SEP

NOV

'JAN07

MAR

MODEL

ACTUAL

Central Region Actual And Model

HOLDOUT

R 2̂=99.8%

OVERALL

R 2̂=87.8%

16

16

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

'JAN05

MAR

MAY

JUL

SEP

NOV

'JAN06

MAR

MAY

JUL

SEP

NOV

'JAN07

MAR

MODEL

ACTUAL

West Region Actual And Model

HOLDOUT

R 2̂=99.9%

OVERALL

R 2̂=88.4%

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17

Tracking Customer Churn

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Ap

r-0

7

Ma

y-0

7

Jun

-07

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-0

7

De

c-07

Jan

-08

Feb

-08

Ma

r-08

Ap

r-0

8

Ma

y-0

8

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-0

8

De

c-08

Jan

-09

Wireless Telecom Customer Churn Rates

Alpha Corp

Beta Corp

Gamma Corp

Following this analysis in 2007, Alpha achieved the greatest favorable churn

reduction among wireless suppliers.

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