One of the factors that need to be considered in any business plan or forecast is churn – which is when customers drop service. I often see ISPs build business plans that don’t acknowledge churn, which can be a costly oversight.
There is a maxim among last-mile fiber networks that nobody ever leaves fiber to go back to a cable company network. That’s not entirely true, but it’s a recognition that churn tends to be lower on a last-mile fiber network than with other technologies. But customers leave fiber networks. Customers might die or move away. Customers might hit hard economic times and be unable to afford the connection.
I wrote a recent blog that asked if broadband is recession-proof. That was really asking if customers drop broadband when they lose jobs or see household income drop. The reality is that some folks have no choice but to drop fiber if things get tough enough. I’ve read several recent articles talking about how inflation in rents is likely to drive a few million people to become homeless – that might mean moving in with somebody else or becoming truly homeless, and broadband goes with everything else in these circumstances.
Churn varies a lot by community, and an ISP considering a new market should research the relocation rate. About 9.8% of all households move every year, or just over 15 million households. The percentage of people who move annually has declined steadily since the 1960s, when the rate was twice the current level. Renters move a lot more often than homeowners – In recent years, almost 22% of renters relocate each year compared to 5.5% of homeowners. ISPs all know that renters don’t only live in homes, and in many communities, a significant percentage of homes are rented. Younger families tend to move a lot more often than older ones. Only about 1% of households move between states each year. About 16% of military families move every year.
Every ISP has customers who die every year. Pre-pandemic, around 2.7 million Americans were dying each year. During the pandemic, in 2020 and 2021, that leaped to around 3.4 million people each year.
Churn can be a big challenge for an ISP. It turns out that most people call to arrange electric, water, and broadband services before they show up in a new community – and in doing so, they most naturally call the incumbents. Somebody new to a town likely won’t know about a smaller or local ISP. Since most people come from communities with little or no competition, they don’t even know it’s possible to use an ISP other than the big incumbents.
Churn can be expensive. There is an obvious loss of revenue when a customer leaves. More insidious is the stranded investment in drops and installation costs that are no longer generating revenue to cover the investment cost. One of the most surprising things that fiber-ISPs often find is that they must continue to spend money on selling and new installations each year just to stand still with the penetration rate.
I’ve seen ISPs with interesting strategies for dealing with churn. I have one ISP client in a college community that hangs out at the university with a booth and a sign that says gigabit internet. College students know what that means, and the ISP has been successful in maintaining a good penetration in off-campus housing. I have clients who pay commissions to real estate agents who refer new homeowners to them. It’s fairly routine to have arrangements with landlords and rental agents to have them get the word out about a broadband alternative to the incumbents.
Churn is one of the details of operating an ISPs that many new ISPs don’t get for a while. But it’s vital to have a strategy. It’s far cheaper to somehow catch a new customer when they move to town. It’s far less costly to catch the new tenant moving into a building that always has a drop.