Churn Modeling in

Wireless
Communication

What is Churn?
Churn or Attrition is the percentage of customers
who leave a service provider
Involuntary Churn occurs when customers are
forced to leave (e.g. due to non-payment of bills)
Voluntary Churn occurs when customers
leave, due to some reason, on their own (e.g.
lured by better prices offered by a competitor)

What is Churn Modeling?

Churn modeling is the task of predicting the
probability of a particular set of customers leaving
within a finite time period (e.g. one month).
Organizations are interested in modeling both
types of churn: Involuntary and Voluntary.

The Industry (1)

The telecom industry has seen very fast growth in
recent years.
Cost of phone calls have fallen by orders of
magnitude.
Wireless telephony has grown much faster than
landline.
Wireless telephony market has expanded more in
developing countries than in developed ones.
Developing countries have high tele-density but
lower usage rates.
Incoming calls are free in most developing
countries unlike that in most developed countries.

The Industry (2)

Fast growth meant that many players could
survive and grow at the same time.
The loss of a customer due to churn was
compensated many times over by new customers
joining.
New customers could be acquired at very low
cost.
The market is now maturing fast.
Most people already have mobile telephone
connections.
Acquisition of a customer by one company will
have to be a loss for another.

Growth in a Mature Market

Growth in a mature market can come from:

Cross-selling and up-selling: Maximizing the profit

from existing customers
Retention and up-selling: Keeping the most
profitable customers
Getting rid of or upgrading unprofitable ones
Poaching: Acquiring customers from competitors

Differences from Other Industries

No direct customer contact

Little customer mindshare
The role of the handset
Sole service provider (usually)
Opportunity to provide value added services
Opportunity to provide location based services

Motivation

Involuntary churn brings losses in unpaid bills

Voluntary churn leads to loss of potential revenue
The industry is competitive
The product offerings are largely undifferentiated
It is easy for an user to switch service providers
As the market matures it becomes increasingly
difficult to acquire new customers
The cost of acquiring new customers is higher than
retaining old customers
Usually the best customers are lured away by
competitors

Data Availability
Huge amounts of data is potentially available

Call data from switches

Customer details
Billing and payment records
Location and movement data (from the towers)
Roaming records

There is great opportunity to analyze customer

behavior, but too much intrusion can backfire

The Business Problem

A large mobile telephone company in a
developing country is facing competition in
a fast maturing market.

It needs to focus on existing customers:

How to keep them and how to make them
more profitable.

How would churn modeling help?

The model would be used to provide a list of

customers most likely to leave
The marketing department could take preventive
action on those customers
The action could be providing discounts and other
promotions
The company in this particular case was owned by a
conglomerate the promotions offered products of
sister companies
The churn models output: churn scores can be
converted to the expected customer lifetime (length
of the customers stay with the company) this can
be used to calculate customer lifetime value
Useful in prioritizing customer segments

Resources Available

A data warehousing project was going on

The prototype of the DW could provide data for
churn modeling
As the DW got migrated to a larger platform and
more data was added more powerful models could
be built
A relational OLAP was in beta testing phase
The OLAP proved helpful for the churn modeling
effort by providing the means to get quick answers
to basic questions
The client was interested in learning how far churn
modeling would utilize the DW data

Data Limitations

The DW was a new initiative it did not have much

historical data
Incoming call data in very useful in churn modeling
but as incoming calls are free the company did not
store incoming call data
The call data (generated by switches) was not
stored, only aggregates and ratios were available
The roaming records were maintained only for billing
purposes (detailed data was not available)

The Goals of Churn Modeling

The customers were segmented into a high value

segment (Club Members) and others
The short term goal was to generate a list of 10,000
Club Members with high churn probability
The medium term goal was to build a Churn
Management Application (CMA)
The users would build and manage the models
The environment would allow import and
transformation of data for models building
The churn scores would be exported from CMA
for deployment in other systems
The long term goal was to integrate churn models
and churn scores with a CRM system

The Choice of Tools

Most of the users were conversant with SAS and

used SAS as a data extraction tool
SAS Enterprise Miner was available, so it was the
obvious choice
Seamless integration between SAS-EM and SAS
enabled easy deployment of the churn scores
As the users would find it easy to understand rules
(rather than complex models like ANN) Decision Tree
algorithm of SAS-EM was used
SAS code had to be used for pruning Decision Trees
Lift was used to measure the efficacy of the models

Important Outputs of the Models

Customer Churn Scores

List of High Value customers likely to churn
(generated periodically)
Churn rate by

Handset model
Demographics
Area
Usage patterns
Customer prototypes

Lessons & Challenges

It is important to start with a clear definition of

churn and to distinguish between the different
types of churn
It is important to know how the results will be
used
Identifying data requirements is critical
In a fast changing environment the models will
need to be re-built frequently users must be
provided with an easy way of doing this
Churn models and scores need to be integrated
into the business process