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ISPs face high churn rates

ISPs are seeing subscription cancellation rates five times greater than those of other telecommunications services, a study says.

Internet service providers are suffering from monthly subscription cancellation rates that are five times greater than those of telecommunications services such as cellular phones, pagers, and long distance carriers, according to a report released today by telecommunications market research firm Strategis Group.

The report underscores the industry's problems in keeping frustrated customers from defecting to other ISPs.

Frequency of
Internet usage
Frequency Work Home
41% 22%
Once/day 19% 24%
Once every
2-3 days
20% 30%
Once/week 11% 13%
Less than
10% 9%
Source: The Strategis Group, Internet User Trends: 1997
Currently, 10 percent of all subscribers cancel their services each month, usually frustrated by busy signals and slow connections. Nonetheless, nearly two-thirds that cancel are signing up with different ISPs, demonstrating that users are not leaving the Net, but rather looking for a reliable alternative.

"Most of customer 'churn' can be prevented by the service provider," Thomas Ross, Stategis senior consultant, said in a statement. Churn measures the percentage of subscribers discontinuing their services.

Since there are so many alternatives, consumers are jumping between services until they satisfy their needs for access reliability, Ross said. And the only way he believes ISPs will survive is to keep churn rates in check by improving their quality of access service and instituting customer service initiatives to draw in the increasing number of new Internet users.

An example of an ISP addressing these problems is MindSpring, which has stopped adding new subscribers in local areas until it adds sufficient modem capacity to support them. Ross said this is a good long-term strategy to keep subscriber loyalty, even though the company potentially could suffer in the short term.

UUNet is also taking steps, but in a more marketing-oriented direction. The backbone provider is guaranteeing its subscribers the ability to navigate at a certain level of throughput. If the ISP does not perform up to this standard, it will refund a portion of its access fees.

But in the long term, Ross believes that the only way ISPs will survive is to become as reliable as other telecommunications firms, so users can access the Internet with as much ease as they experience with their long distance service, for example.

The study released today by the Washington, D.C.-based firm also showed various Internet usage trends in 1997. According to the report, users are almost evenly distributed between the sexes, are likely to have a college degree, and have an average annual income of $54,000. Almost 80 percent of all users access the Internet from their homes, while 60 percent access the Net at work. In total, users spend an average of 8.5 hours per week online.