Dialing Up Digital: Retaining a New Generation of Customers

1. Dialing Up Digital: Retaining a New Generation of Customers Our recent survey reveals that despite significant investments by communications service providers, Millennials’ satisfaction with pay TV, high-speed Internet and mobile services has waned.

2. 2 KEEP CHALLENGING July 2015

3. DIALING UP DIGITAL: RETAINING A NEW GENERATION OF CUSTOMERS 3 Executive Summary Industry consolidation brought about by mergers, the rise of OTT (over-the-top) content providers such as Netflix and Amazon, plus the influx of relatively new service providers like Google represent fundamental changes that threaten the viability of the communications industry’s current business model. Increasingly, competitors are attempting to lure customers — especially Millennials (younger, tech-savvy individuals who represent tomorrow’s market) away from CSPs. To retain this segment, CSPs must act now to enhance their current services, better understand younger customers’ needs and make their digital support channels — mobile apps, mobile Web services and self-service Web sites alike — easier to use. This is critical, given Millennials’ strong tendency to change service providers. The above highlight some of the key insights from our second annual Communications Industry Customer Experience Survey, conducted in late 2014 among 925 U.S. CSP customers. In addition, the survey revealed some compelling facts regarding how customers feel about the services CSPs provide: • Younger customers (under 49 years old) are less satisfied with their current CSP services — especially so with high-speed Internet (HSI) and mobile — than older consumers (50 and up). • Millennials, like their older counterparts, still prefer the phone over lower- cost digital channels to contact their CSP. When they try the latter, they often find them inadequate or hard to use. • All customer age groups reported having privacy concerns with customized products or services resulting from online searches. These misgivings lessened somewhat for younger customers, with three out of ten of those 49 and under stating that it is worthwhile to share personal information in order to receive customized offers. Only 7% of those 65 and older agreed. • Younger customers (particularly those from 18 to 34 years of age) are far more apt to “cut the cord” with pay TV services than older customers. We found that among those who did cancel these services, only 7% plan to return to pay TV. However, the fact that these younger consumers gave more reasons for keeping their pay TV services points the way to strategies for retaining them. • Younger customers are more likely than older ones to trust providers to get the technology right for future services, such as connected home, and to find those services valuable.

4. 4 KEEP CHALLENGING July 2015 How CSPs Must Respond Our survey results tell us that CSPs should analyze the differences between younger and older customers, and use that information to retain them and build their confidence. One method is to capture their personal “Code Halos” — the digital data that surrounds people, organizations and devices. For example, an individual’s Code Halo™ can reveal the channels they prefer, the support sites they visit — even their comments on social media.1 Analyzing these “digital bread crumbs” can help pinpoint a customer’s product preferences and viewing habits, as well as what went right — and wrong — in their interactions with their service provider. CSPs can then use that knowledge to improve their products and services and make it easier to keep — and even recapture — younger customers. Finally, CSPs must ensure that their efforts to personalize solutions and services not only deliver the expected value, but also provide the levels of security and privacy these customers demand. In the following pages, we will detail the findings from our 2014 survey and suggest actions CSPs can take, based on participants’ responses (see Appendix, page 13, for more details). This content builds upon the results of our initial survey, conducted in late 2013, which ranked customers’ satisfaction with CSPs and explained how these companies can improve efforts to attract and retain them. Younger Customers are Less Satisfied with CSPs Our survey found that younger customers “churn” from provider to provider more often than older consumers, with 46% in the youngest category switching carriers over the previous two years, compared with 14% in the oldest category. This is a compelling indicator that younger customers are less brand-loyal than older ones. The survey also highlighted the need for CSPs to act quickly and aggressively to leverage customer insights, and use that information to develop a customer- engagement model that focuses on personalizing and simplifying processes, and retaining a new generation of customers. Compared with the results from last year’s survey, Millennials are less happy with their provider’s high-speed Internet and mobile services; factors that drive satisfaction across pay TV, HSI and mobile services continue to be timely installation and repairs, knowledgeable customer support representatives, short wait times on calls, easy billing, and recharge and account-management options (see Figure 1, next page). Young customers also communicate with their CSP more frequently than older customers, with 32% contacting their CSP once a week or once a month, compared with 8% in the oldest age group. These younger consumers are also far more likely to “cut the cord” with their pay TV service, and highly unlikely to return once they do. FINDING #1 An individual’s Code Halo can reveal the channels they prefer, the support sites they visit — even their comments on social media.

5. DIALING UP DIGITAL: RETAINING A NEW GENERATION OF CUSTOMERS 5 47% 56% 51% MOBILE HIGH-SPEED INTERNET PAY TV 53% 63% 60% 50% 68% 65% 50% 57% 55%Ages 18-34 Ages 35-49 Ages 50-64 Ages 65+ Percent of customers who are satisfied with service: EXIT Ages 35-49 Ages 50-64 Ages 65+ 13% 22% 65% 7% 4% 12% 10% 87% 81% Percent of customers who leave service providers: In less than 6 months After 2 years or never Between 6 months and 2 years 24% 22% 54% Ages 18-34 Younger Customers are Less Satisfied with CSPs … … Which Drives More Churn Response base: 925 Source: Cognizant Annual Communications Industry Customer Experience Survey Figure 1

6. 6 KEEP CHALLENGING July 2015 I just want to talk to a person I’ve used the phone and it worked well Online process is too complicated I can’t find what I’m looking for Mobile app process is too complicated The online price was different than what I was quoted I was directed to call by the online process I tried an online/mobile process but got an error message Ages 18-34Ages 65+ 0 20 40 60 80 CSPs’ Digital Channels Fall Short — Even for Younger Customers Digital channels such as mobile apps or self-service Web sites can improve customer satisfaction while greatly reducing CSP support costs. However, our survey indicates that CSPs have yet to deliver the ease of use and robust digital services required to lure even younger customers away from higher-cost phone support. The survey also tells us that while younger customers are more open to using digital support channels they, just like older consumers, use the phone most often when they need help. A deeper dive into the survey data provides useful insights into the reasons behind their preferences, as well as potential steps providers can take to move them to digital support services. For example, among the top reasons survey respondents gave for using the phone were “I just want to talk to a person,” and “phone customer support has historically worked well.” (See Figure above.) Cited less often were concerns that online channels are too complex, that the support needed won’t be available, or that advice provided by the digital channel was to call the CSP. Why Phone Support Works Response base: 925 Source: Cognizant Communications Industry Customer Experience Survey Figure 2 FINDING #2 While younger customers are more open to using digital support channels, they, like older consumers, use the phone most often when they need help.

7. DIALING UP DIGITAL: RETAINING A NEW GENERATION OF CUSTOMERS 7 These findings indicate that in order to shift younger customers to digital channels, CSPs must make sure that these channels are easier to use; that they provide the services customers use most frequently, and that customer and support information from back-end systems is integrated in the customer-facing channel. This helps ensure that customers who want to use a digital channel are not forced back to the phone. On the more positive side, the survey shows that the use of digital sales and support channels increased somewhat year over year, with the biggest upturns seen in billing/ recharge and order/upgrade services. The survey also confirmed that browsing for products and services is the only activity that is preferred over the phone. Older customers also reported a significant drop-off in digital use when they switch from browsing to ordering. The transition from browsing to ordering represents a key inflection point in the customer journey, and a significant opportunity for CSPs to boost customer satisfaction rates and revenues. CSPs can begin by tracking at which points in the digital sequence customers abandon the ordering process and call an agent. Using advanced technologies to monitor and analyze customer transactions in real time, CSPs can diagnose customer challenges quickly and take appropriate measures to improve digital conversion rates. Our survey also revealed that Millennials contact CSPs much more frequently than older generations — most often to resolve billing or recharge issues, or to review their service usage or status (see Figure 3). Their frequent contact, combined with their strong preference for non-digital service channels, translates into higher operating costs for CSPs. By utilizing targeted digital tools that make it easier to perform routine tasks online, and educating customers about digital support options, CSPs can increase adoption rates and significantly reduce ongoing operating expenditures. CSPs can use each customer encounter as an opportunity to deliver excellent service and test customers’ openness to new services, such as connected home. The fact that younger customers contact CSPs so often for billing and recharge issues also opens the door for and cross- or up-selling new or additional services. Again, analytics can be used to examine and correlate customers’ service-usage patterns, contact preferences and previous contacts. For example, a customer who uses a lot of data and cloud-based DVR would likely be more open to a service like connected home. The figure represents the average contact rate of respondents. Respondents were asked to detail how often they call their service providers for reasons such as billing/recharge, technical support or service disruption, to browse product/service offerings, and to review their service usage. Response base: 925 Source: Cognizant Communications Industry Customer Experience Survey Figure 3 Ages 35-49 Ages 50+ Ages 18-34 Once a week or once a month Every 2 to 6 months Once a year or less 51% 17% 32% 65% 17% 18% 74% 17% 9% Contact frequency: Younger Customers Contact CSPs Far More Often Our survey shows that the use of digital sales and support channels increased somewhat year over year, with the biggest upturns seen in billing/recharge and order/upgrade services.

8. 8 KEEP CHALLENGING July 2015 FINDING #3 Younger Customers Are More Interested in Connected Home Very interested Somewhat interested Not at all interested 19% 38% 43% 65% 9% 26% 39% 49% 12% 31% 42% 27% Ages 18–34 Ages 35–49 Ages 50–64 Ages 65+ Response base: 925 Source: Cognizant Communications Industry Customer Experience Survey Figure 4 Despite the best efforts of CSPs, some customers will continue to favor the phone over digital channels. Rather than attempt to force them from the contact point they prefer, CSPs can employ analytics to improve customers’ phone experiences and build their confidence in future offerings. For example, analytics can help CSPs determine how a customer ranks their service experience, whether in a survey, a direct complaint, or from analyzing cancellation patterns following various support interactions. For instance, analytics can be used to steer a customer to a service rep who is a native English speaker, or who matches the customer’s level of technical expertise — assuming these preferences have been identified. CSPs should also equip contact-center agents with the tools and knowledge they need to serve customers quickly and efficiently. For example, providing agents with a customer’s subscription history and current diagnostics, as well as recommended steps for resolving an issue efficiently can not only improve customers’ satisfaction, but also reduce the cost of serving them. Younger Customers Are More Open to Connected Home Services, and Trust CSPs More to Deliver Them Despite their dissatisfaction with some CSP services and support options, Millennials are more interested in exploring the potential of services such as connected home — automated or remote-control management of entertainment, security, and heating and cooling systems. Also, they are more inclined than older customers to trust CSPs to deliver these services effectively (see Figure 4, left, and Figure 5, next page). Connected home is thus an opportunity, as long as CSPs can continue to excel in providing existing services, and build on that success to convince customers to try new offerings. Our survey highlights a potential road forward by showing the highest interests among younger customers, who want the ability to: • Play audio files on any music player in the home. • Stream video from smartphones to other devices. • Monitor health metrics and send key performance indicators to doctors/ hospitals. • Use smartphones as remotes for TV and other home-entertainment/connected home devices. CSPs should consider performing more in-depth market research on the specific features customers value most in such services. They should also investigate com- plementary, segment-specific partnerships with other entities — companies that offer wearable technology, home entertainment companies, wireless streaming vendors, or local hospitals or fitness centers, for

9. DIALING UP DIGITAL: RETAINING A NEW GENERATION OF CUSTOMERS 9 example — to bundle specialized software and hardware with wireless services. For instance, such offerings might help diabetics monitor their food intake, or fitness enthusiasts keep track of their exercise progress. Deep Concerns About Personalization Our survey suggests that personalization — making meaning from customer interactions and transactions to create service offerings that are customized to individual wants and needs — is a double-edged sword for younger customers CSPs seek to retain. On one hand, these younger customers are more likely to share personal information in order to receive customized offers and rewards. However, our survey found that among all age groups, personalization is more valued if it is used to tailor services, rather than support unsolicited product offers (see Figure 6, next page). This tells us that to mollify concerns about personalization, any customization based on private information must be viewed as providing real value to the customer, not the other way around. For customers whose bandwidth consumption shows high levels of OTT (over-the-top) video usage, the CSP can take a proactive approach and suggest they downgrade to a lower tier of pay TV service, but upgrade to a faster data package that improves video streaming. While this may cost the CSP revenue in the short run, it could keep the customer from moving to another data provider altogether. It could also strengthen the customer’s trust in the CSP enough for them to consider the company for future wireless or connected home services, which appeal to younger customers more than traditional pay TV offerings. FINDING #4 Carrier will provide high level of service. Ages 18–34 Ages 35-49 Ages 50-64 Ages 65+ Carrier will get technology right. Service would improve their satisfaction. If service was offered, they would likely subscribe. Regarding home services,more millennials are “very confident”that: 40% 37% 33% 24% 38% 33% 27% 16% 38% 31% 15% 7% 6% 36% 30% 16% Millennials Trust Their Service Providers to Deliver Connected Home Services Response base: 925 Source: Cognizant Communications Industry Customer Experience Survey Figure 5

10. 10 KEEP CHALLENGING July 2015 Determining the personalized services and offerings that best suit a customer’s needs requires an all-inclusive view of their activities and preferences, compiled from data that previously resided in siloed systems — from customer support, to billing, to operations. Strategies for Keeping Younger Pay-TV Customers For all age ranges, the biggest decline in satisfaction year over year was in pay TV. It’s no surprise that our survey found that younger customers were turning off these services more often than older consumers, with 52% of the youngest age group moving to lower-priced options such as Netflix, Hulu and Amazon Prime. It is worth noting that only 7% plan to repurchase pay TV once they cut their ties with these services. At the same time, survey results point to possible strategies for retaining or even regaining younger customers. When asked what might keep them from dropping pay TV services, these individuals gave more reasons than older survey respondents. This opens an opportunity for CSPs to develop new strategies for keeping Millennials as pay TV customers. We found that among all age groups, personalization is more valued if it is used to tailor services, rather than support unsolicited product offers. Sharing personal information is worth it to get customized product offers. Sharing personal information is worth it to get tailored customer service. I expect providers to tailor their offerings based on my current service usage. 30% 26% 15% 7% 30% 27% 16% 7% 39% 31% 27% 28% Ages 18-34 Ages 35-49 Ages 50-64 Ages 65+ 30% and higher agree 16%-29% agree 15% and lower agree Millennials Are More Open to Personalized Services FINDING #5 Response base: 925 Source: Cognizant Communications Industry Customer Experience Survey Figure 6

11. DIALING UP DIGITAL: RETAINING A NEW GENERATION OF CUSTOMERS 11 While older age groups cited missing programming as the only reason for keeping pay TV, younger customers had other concerns, including: • Missing shows. • Cutting the cord will be too expensive. • Unsure what equipment and services to use for streaming TV. • They contacted the provider to cancel but got a better offer that induced them to stay. By analyzing individual customer interactions, such as those related to billing and services, CSPs can understand the priority each customer gives to these concerns and craft offers designed to recapture and retain them. For example, examining the viewing habits of younger customers that are prone to cord-cutting can help CSPs develop specialized content offerings, perhaps around sporting events or other premium content that appeal to this demographic. CSPs can also analyze streaming TV offers and social-media commentary about those services to identify vulner- abilities, such as cost or complexity, and tailor either low-priced or “simple-to-use” offers to keep younger consumers who might otherwise turn away. CSPs can also perform Code Halo data analyses to understand customer needs, and improve business practices around their current pay TV service. In this way, they can identify the issues each customer cares about most. As our survey shows, these concerns can include timely installation/repairs, knowledgeable customer support reps, and short wait times. Service providers can use information from employees’ Code Halos, such as their location, work schedules and when they install equipment (by remotely monitoring equipment on the customer’s premises) to better assess work progress and more precisely inform customers when a technician will arrive and/or when the problem will be resolved. Looking Ahead As our study reveals, the disconnects among CSP business practices and customer needs, especially those of Milennials, should serve as an urgent call to action. When CSPs cannot satisfy young consumers with Internet and mobile phone services, much less pay TV, they are endangering what should be a natural source of long-term revenue. When a CSP’s mobile apps and self-service Web sites are too complex for even today’s younger, tech-savvy consumers, it’s a sign that the company is not meeting, much less anticipating, the needs of the very customers they plan to keep for decades. At the same time, our survey highlights strategies CSPs can use to retain younger customers, and also potentially cross-sell or up-sell future services like connected home, to them. The fact that younger consumers have expressed more interest in these types of services and trust their CSPs to provide them gives CSPs an opportunity to engage these young people by upgrading current services and correctly targeting future services for this demographic. By performing more transactions online, improving the quality of digital transactions like billing inquiries and service changes, and using analytics for a more informed, more complete view of customers, CSPs can enrich their relationships with current customers and attract new ones to accelerate future growth.

12. 12 KEEP CHALLENGING July 2015 Among our recommendations: • Employ, make meaning from Code Halos. These “digital bread crumbs” left by individual customers as they navigate products and services can form a clearer picture of their needs, and allow CSPs to customize offers around them. Use this data to make every interaction easier, on the customer’s terms. This is particularly important for younger customers, who will form your future customer base. Code Halos created by employees or organizational processes can improve customer communications. For example, one CSP with whom we work is evaluating a smartphone application that lets customers track the location of a technician en route to address their issue, and sends them a picture of the tech when they are about to arrive. • Overcome customer concerns about personalization. This issue can be addressed by developing customized services that present a compelling value proposition. These offerings could include a new service plan for customers nearing their limits for voice, text or data on their current plan, or lower-priced plans for those who are not using all the voice and data on their present plan. These initiatives would impose costs on the CSP in the short run, but increase long-term loyalty and pave the way for future up-sell or cross-sell opportunities. • Enhance current phone support offerings, as well as digital channels to improve customer satisfaction and, where possible, reduce support costs. Again, tap into customers’, employees’ and systems’ Code Halos to design personalized services, speed problem resolution and provide more accurate updates. • Empower call-center agents with the tools and knowledge they need to quickly assist the customer, since the phone is not going away anytime soon. Agents should, at the very least, have a “single view of the customer” that allows them to see all the steps a customer has taken so they don’t have to re-explain their situation to the agent. These agents should also have the same view of customer data that can be seen online so they can give customers prompt, accurate and consistent answers. • Understand customers’ needs and priorities, using both conventional market research and analysis of their digital behavior to develop specialized offers that can help retain and regain pay TV customers. • Strive for excellence in current services to build customers’ trust, steer them to new services and cement their overall satisfaction and loyalty. By performing more transactions online, improving the quality of digital transactions like billing inquiries and service changes, and using analytics for a more informed, more complete view of customers, CSPs can improve their relationships with current customers, attract new ones, and accelerate future growth.

13. DIALING UP DIGITAL: RETAINING A NEW GENERATION OF CUSTOMERS 13 Appendix: Survey Methodology and Objectives For our second annual Communications Service Provider Customer Experience Study, we conducted a 20-minute online quantitative survey of 925 respondents in November, 2014. To qualify, respondents had to be 18 years or older, and be a current subscriber to pay TV/video services, high-speed Internet and/or mobile services. Our objectives: • To understand how satisfied customers (particularly younger customers) are with CSPs’ products and services. • To confirm the support channels that various types of customers prefer, and the reasons behind those preferences. • To determine the likelihood of customers of various age groups “cutting the cord” and cancelling their pay TV service, as well as their reasons for doing so. • To understand the interest levels among customers of various age groups for newer services, such as “connected home” offerings. • To verify customers’ attitudes regarding the use of their personal information to customize products and services for them. Footnote 1 For more on Code Halos and innovation, read “Code Rules: A Playbook for Managing at the Crossroads.” Cognizant Technology Solutions, June 2013. http://www.cognizant.com/Futureofwork/Documents/code-rules.pdf, and the book, Code Halos: How the Digital Lives of People, Things, and Organizations are Changing the Rules of Business, by Malcolm Frank, Paul Roehrig and Ben Pring. Published by John Wiley & Sons. April 2014. http://www.wiley.com/WileyCDA/ WileyTitle/productCd-1118862074.html. Note: Code Halo is a trademark of Cognizant Technology Solutions.

14. 14 KEEP CHALLENGING July 2015 About the Authors Bryan Powell is a Director within Cognizant Business Consulting’s Communication and Technology Practice. He has over 12 years of experience partnering with and delivering consulting support for key customer-experience initiatives, including digital strategy and enablement, channel effectiveness, contact-center management, customer satisfaction improvements and cross-channel functionality design. Bryan holds a bachelor’s degree in business computing systems from Bradley University. He can be reached at Bryan.Powell@cognizant.com | LinkedIn: https://www.linkedin. com/in/bryanpowell1. Sara Mihan is a Senior Manager within Cognizant Business Consulting’s Communication and Technology Practice. Sara has over 15 years of experience as a management consultant in the communications industry. She works with clients to plan, manage and deliver IT software projects, including customer self-service appli- cations. Sara has a bachelor’s degree in mechanical engineering from the University of Denver. She can be reached at Sara.Mihan@cognizant.com | LinkedIn: https:// www.linkedin.com/in/saramihan.

15. DIALING UP DIGITAL: RETAINING A NEW GENERATION OF CUSTOMERS 15

16. World Headquarters 500 Frank W. Burr Blvd. Teaneck, NJ 07666 USA Phone: +1 201 801 0233 Fax: +1 201 801 0243 Toll Free: +1 888 937 3277 inquiry@cognizant.com European Headquarters 1 Kingdom Street Paddington Central London W2 6BD Phone: +44 (0) 207 297 7600 Fax: +44 (0) 207 121 0102 infouk@cognizant.com India Operations Headquarters #5/535, Old Mahabalipuram Road Okkiyam Pettai, Thoraipakkam Chennai, 600 096 India Phone: +91 (0) 44 4209 6000 Fax: +91 (0) 44 4209 6060 inquiryindia@cognizant.com © Copyright 2015, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners. TL Codex 1372 About Cognizant ComTech Cognizant’sCommunicationandTechnology(ComTech)business unit helps CSPs move towards the digital world by combining our disciplines in strategy, experience design, industry process knowledgeandfoundationaltechnicaltoco-createnewbusiness models with our clients. Our digital maturity assessment helps CSPs understand the gap between their customers’ needs for anywhere, anytime service and a CSP’s ability to provide it. Our customer-journey mapping process identifies customer needs at each stage of the purchase and support process, and identifies how CSPs can better meet customers’ needs throughout the service lifecycle. We have helped multiple CSPs refine service and support processes to maximize efficiency and customer 33retention, and to analyze data from customer interactions to improve service and develop innovative new products. About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 100 development and delivery centers worldwide and approximately 217,700 employees as of March 31, 2015, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.

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