Splitting up with your cell phone carrier

Sprint Nextel's breakup with some customers may not be popular, but it could make financial sense. Images: Sprint's Dear John letter

A correction was made to this story. Read below for details.
Breaking up is hard to do, especially when you're getting dumped by your cell phone carrier.

After eight years as a Sprint Nextel customer, Rene, who goes under the pseudonym MissDiva on SprintUsers.com, received a letter from Sprint Nextel telling her they were done.

As is the case at the end of many relationships, Rene--who doesn't want her last name used because she was publicly criticized after posting her saga on the SprintUsers.com forum--said she never saw it coming.

"I am very upset," she said. "I was a very loyal customer. I didn't even get the courtesy of a phone call."

Rene's service was cancelled because Sprint said she had called the customer support line too often. In a letter dated June 29, 2007, the company informed her that her service would be terminated on July 30, 2007. The also said she wouldn't have to pay the early termination fee, and her account, which she claims she pays in full at the start of every month, would be set to zero.

But while Sprint's letter irked Rene, and most likely other customers who received similar alerts, the company's move shouldn't come as too much of a surprise.

For carriers, customer service calls cut into profits. For a typical wireless subscriber who spends about $55 a month on a service, carriers only realize a profit of about $24, according to Roger Entner, a senior vice president at IAG Research. On average, it costs companies between $2 to $3 for every minute a subscriber is on the phone with a customer support representative, he said. This means that all of a carrier's profit for one subscriber is eliminated after only 8 to 12 minutes per month of phone calls to customer support.

"I'm sure they figure they are losing money on these customers," Entner said. "If you run the crude math, you see that customers who excessively use call centers simply aren't profitable."

According to JD Power & Associates, more than half of all wireless users in the U.S. contacted their wireless customer service department in 2006. Of those who contacted customer support, more than 42 percent of customers contacted their providers with billing issues. And 55 percent of those customers made calls due to inaccurate charges.

Still, even though customer support is costly for wireless operators, none of the major carriers, with the exception of Sprint, have a policy of canceling service when customers make too many calls to these hotlines. That said, carriers including AT&T, Sprint Nextel and Verizon Wireless, all reserve the right to cancel contracts if the majority of their service is used over a roaming network.

Too much roaming can get you cut, too
"We don't cancel customers no matter how many times they call customer support," said Mark Siegel, a spokesman for AT&T. "But we do have a policy against excessive roaming. We realize people will roam from time to time, but we have planned our network for a certain amount of roaming and expect our customers to spend the vast majority of their time on the AT&T network."

Furthermore, Siegel adds that AT&T warns customers that their roaming privileges will be reduced after 30 days, or gives subscribers 60 days to find a new provider.

Verizon has gotten flack recently for canceling subscribers' contracts when people exceeded 5GB of data usage per month on its network. The company advertises its service as unlimited, but Jeffery Nelson, a spokesman for Verizon Wireless, said that using this much bandwidth per month is an indication that customers are using the service for activities that are explicitly prohibited by the usage terms.

Entner said that regardless of the reason, carriers do not take lightly the decision to terminate a customer's contract, especially since it costs them between $300 and $350 to obtain each wireless customer. At this rate, carriers only start making money on new customers after one year of service.

"They don't do this willy-nilly or capriciously," Entner said. "Sometimes they keep customers even if they are slightly unprofitable simply to avoid the bad publicity or to keep their churn rates lower. So if they get to the point where they terminate a customer, usually the problems are really significant."

Indeed, Sprint spokeswoman Roni Singleton said the company only terminates contracts as a last resort. She wouldn't discuss the specific details of any particular customer's situation, but she said the cancellation letters issued on June 29 only impacted a "small minority" of customers. She would not specify how many.

"We have to be able to quickly and efficiently serve customers," Singleton said. "And when we are unable to consistently solve our customers' problems, it results in a lot of frustration and longer waits for other customers. So after looking through our records, we were able to determine that there were customers (whose needs) we couldn't meet."

 

Correction: This story misidentified the amount of monthly data usage that has prompted Verizon Wireless to cancel subscriber contracts. The amount is anything in excess of 5GB per subscriber.
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