Customer Service Costs

In a bold move, Sprint Nextel recently decided to terminate the connection of 1000 subscribers because they were making far too many calls to customer service. Apparently because of the calls to the customer service centres these customers were costing more than the revenue brought in by them.

It is a bold move and opens door for discussions on customer profitability and possibly impact how companies look at ARPU. May be the industry will come out with a new metric APPU - Average Profitability Per User.

ARPU has in the past been accused of being a creation of the west. Companies in the western world have a high customer set up/acquisition cost due to features such as credit facilities on minutes of use and providing handset subsidies. ARPU was created, as some might argue, to show they could generate future cash flow from their investments on customers. In the developing world, however, customers are usually prepaid and more or less cover the marginal cost required to acquire them and become profitable from day one and hence in spite of low ARPU's companies survive.

HT: IDC, Telecommunication Magazine