Sprint Nextel's breakup with some customers may not be popular, but it could make financial sense. Images: Sprint's Dear John letter
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."
That breaking point could be lower for Sprint than for some of its competitors. While other wireless operators, such as AT&T and Verizon Wireless, are , Sprint Nextel .
The company lost $211 million during the first quarter compared with a profit of $164 million for the same period a year earlier. Revenue for the quarter, which topped out at $10.1 billion, only grew 1 percent compared to the previous year. The company blamed the disappointing results on investments in network coverage and subsidies for handsets, among other things.
In general, the company has struggled since its Nextel acquisition to retain customers. In the first quarter it lost 220,000 monthly subscribers. The company has consistently had one of the highest churn rates in the industry, topping out at about 2.7 percent for the first quarter. By contrast, Verizon has kept its churn around 1.1 percent.
Given this fact, it might seem strange that the company, which is in desperate need of retaining subscribers, would cut any.
Rene said she had only been calling the customer support line to correct Sprint's billing mistakes.
"I wasn't calling to be annoying," she said. "I was just trying to get them to fix their mistake. I still like the service and feel like I am getting a great deal. I even renewed my contract a couple of months ago and upgraded to the new Treo 755."
She claims Sprint began charging her in January for additional services that had previously been included in a special plan the company offered her in 2005 when she renewed her contract for the third time. The plan consisted of 1,000 anytime voice minutes, free night and weekend calling, free text messaging, unlimited data usage, and free mobile-to-mobile minutes for $40 a month, a great deal to say the least.
When charges started showing up on her bill, Rene called customer support to straighten out the issue and was assured it had been a mistake and the same problem would not occur the following month.
But when her bill came the next month, the charges were still there, she said. For five straight months, Rene called the Sprint customer support line after she received her bill to clear up the erroneous charges, and each time was assured the problem had been fixed.
While she said the customer representatives she dealt with seemed helpful, she often had to sit on hold for 30 minutes or more. She was transferred to several different operators in different departments, she said. And numerous calls were dropped, forcing her to call back.
What Rene didn't realize is that Sprint was keeping a tally of her phone calls, counting each transfer as a separate call to the support line. Finally, without warning, she was told in the June 29 letter to find another carrier.
"Our records indicate that over the past year, we have received frequent calls from you regarding your billing or other general account information," the letter reads. "While we have worked to resolve your issues and questions to the best of our ability, the number of inquiries you have made to us during this time has led us to determine that we are unable to meet your current wireless needs."
"Therefore after careful consideration, the decision has been made to terminate your wireless service agreement effective July 30, 2007."
For the past week, Rene has been trying to get the decision overturned. But on Friday, she was informed that the company is still canceling her service.
Meanwhile, Rene's boyfriend, who is also a Sprint subscriber, says he has gotten 30 unsolicited telemarketing calls over the past several months from Sprint asking him if he wants to add additional lines to his service. Even though he has explicitly asked Sprint not to call him with additional offers, he is still receiving phone calls.
"It's ridiculous that they can call us as many times as they want to sell us something," Rene said. "But if I call to ask them to fix their error, they cancel my service."