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This article is part of our Winning in Fiberland series. Special thanks to the Executive MBA ‘25 students at the McCombs School of Business at The University of Texas at Austin who conducted the primary research and analysis.
Choosing a new internet service provider (ISP) is a hassle. From hours discussing packages on the phone, to blocking off a day to deal with a technician arriving at your house, one would think most Americans would avoid switching providers at all costs. But our data says otherwise.
According to our findings, 20% of customers nationwide switched ISPs in the last year, while only 38% have remained with the same provider for more than five years. Urban areas show a higher churn rate (27% switched in the last year), while rural areas see slightly more stickiness (only 16% switched) because there are fewer options to choose from. Age also correlates heavily with decision-making, as churn decreases starkly as consumers grow older.
As new entrants intensify competition and fixed wireless access becomes commonplace, customers—particularly those in rural areas—may be even more likely to switch than before. So will people rush to fiber as soon as it’s available? Not necessarily.
Telco operators must gain a better understanding of their customer bases at the granular level. Micro-segmenting consumers within specific markets allows industry players to tailor retention efforts to highly specific needs and behaviors, while more effectively enticing new consumers to join their networks.
What drives consumers to switch?
Before diving into churn-reduction strategies, it’s critical to understand why consumers across segments change telco providers in the first place.
The number one reason people switched providers in the last year was to lower their monthly bill, as reported by 40% of respondents nationwide. This was especially pronounced in urban settings, partly due to more options available. Moving finished second, leading 31% of respondents to churn. Consumers in the 18-24 and 25-34 age groups cited moving most heavily, which makes sense as they are more likely to move frequently either for college or starting their careers.
Internet speed, at 29%, was the third-highest cause of churn—a figure which rose to 33% in rural areas due to chronically slow internet speeds. For the youngest survey respondents in the 18-24 age range, speed was actually the top reason to switch providers at 42%—even higher than price at 40%. Reliability finished fourth, with a quarter of people having switched providers due to reliability problems and frequent outages.
What do consumers look for in an ISP?
Not surprisingly, the most important factors for consumers when selecting their new internet service providers largely align with the reasons that led them to leave their old providers:
- Price
- Speed
- Reliability
The significance a consumer places on each of these factors can provide insight into their propensity to switch providers in the future, and therefore their customer lifetime value (CLV).
For example, when respondents have been with a provider for at least two years, they are twice as likely to cite reliability as their top factor for choosing a new provider compared to those who have spent less than two years with their current provider. This seems to signify that while price and speed can be effective selling points to win new customers, reliability is crucial for retention.
How do telcos effectively retain and grow their customer bases?
We’ve seen operators cut prices in specific markets hoping to retain customers who have more options than before—but unfortunately, this strategy misses a few crucial points:
- Operators will lose some customers regardless of price, as any new competitor will have the benefit of novelty and no legacy dissatisfaction from service issues.
- Lowering the price for all customers reduces monthly recurring revenue (MRR) and drives down overall top line and profitability much more than a targeted approach.
- Price is not the sole deciding factor for many customers.
Based on our extensive work in the telecom industry, we have found the following actions to be most effective:
Do not differentiate on technology
According to our survey, 39% of respondents are not aware of the technology powering their service or believe their Wi-Fi router is the connection itself. Consumers care whether their TV shows, virtual calls, and video games load and stream smoothly—not about the technology powering the connection.
Operators that charge premium prices due to premium technology offerings are missing the mark if they’re focusing marketing efforts on the tech. Instead, they must focus on differentiating themselves from competitors and cable providers based on value levers that align with actual consumer interests.
Know your customer base
Incumbents have a leg up: they have vast piles of customer data, detailing how they use their internet service and when and where they typically make phone calls. As such, they can tailor personalized offers at just the right time to secure contract renewals.
While price is the most important decision factor, don’t get caught up in the race to the bottom. A group of highly price-sensitive customers will regularly churn—don’t sacrifice your margins to keep these customers. The same segment will be churning away from your competitors and will therefore be low-hanging fruit for acquisition.
Allow and plan for low levels of low-value churn
Instead of focusing on highly price-sensitive customers, focus on CLV and customer acquisition cost (CAC). These two metrics are the key to acquiring and retaining customers efficiently.
To start, mine historical data to understand which of your current and former customers have stayed longer, how much value they have produced (gross profit less cost-to-serve over the life of a customer), and how their purchasing and usage patterns have differed from customers who stayed on for shorter periods of time.
Understanding CAC in relation to CLV is critical, as numerous programs are designed to incentivize customers to switch providers. This cost should include both the out-of-pocket cost and the internal cost to introduce and manage relevant programs.
Target customer acquisition and retention efforts at higher-value customers through micro-segmentation
Once you have a better understanding of the relationship between CLV and CAC, you can build a target customer profile that drives significant organizational value. You’ll now be able to target marketing efforts to consumers that fit the profile and reduce investment in those less likely to be profitable. Not only does this bolster retention efforts by tailoring to segment-specific needs and behaviors, but it frees capital to strengthen loyalty among higher-value customer segments.
For an example of this strategy in action, we can look into our survey results. Respondents with fiber internet were 1.9x more likely than the national average to have selected their service provider through a door-to-door salesman. While this sales channel can be effective given the benefits of an in-person conversation, it comes with higher costs. Therefore, operators should only consider using it on segments with a lower propensity to switch and thus offer higher CLV—which our survey found to be suburban and rural residents aged 50 and over. At the same time, operators can focus less expensive campaigns—such as online advertising, email, and direct mail—on consumers with a higher tendency to churn, which we found to be younger consumers and urban residents.
This outcome shows how micro-segmentation and targeted go-to-market efforts can boost conversion across multiple segments at the same time, maximizing CAC ROI. Micro-segmentation within small markets enables operators to effectively convert change-resistant, tech-savvy, higher-income subscribers with a lower cost to acquire while simultaneously targeting less mature, more price-sensitive consumers (who are therefore highly loyal with a high CLV) with door knockers.
Deploy micro-segmentation today to improve customer acquisition, retention, and ultimately, value realization
AlixPartners has built and deployed micro-segmentation and predictive personalization engines to tailor messaging and offers to discrete customer segments, enabling a higher acquisition rate at a lower cost.
The future is now—through technological advances, such strategies will soon separate leaders from laggards in the race to grow share in this expanding industry. The more personalized the offer, the better the chance of conversion.
