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Broadband: The Cost of Service
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For several years, I have used service-call percentage tracking as a means of gauging the cost of a cable system’s corrective maintenance activities. Also called demand maintenance, corrective maintenance is a response to problems resulting in the dispatch of a service technician to a subscriber’s home or to a portion of the network requiring attention.

An effective measure of corrective maintenance is the monthly service-call percentage. This is defined by the formula SC% = (T/N) x 100, where SC% is the monthly service call percentage, T is the number of service calls in a one month period and N is the average number of subscribers during the same month.

For example, if a 20,000 subscriber system has 800 service calls during one month, its service-call percentage for that month is 4 percent. Based on 22 working days per month, this averages to more than 36 service calls each day in this hypothetical system. Being conservative and using a figure of $50 per service call, this system’s corrective maintenance is costing about $40,000 per month.

The $50 per service-call figure includes the technician’s salary plus overhead, vehicle and tools, dispatch, customer service representative (CSR) time to talk to the subscriber and write up the call, computer processing/logging, etc. If you do the analysis, you’ll probably find the real cost is more than the $50 figure I’m using here. Figures may go as high as $100 or more per service call.

When tracking these percentages, service calls include anything requiring a technician to go to the field. Among these are the usual service calls for network, drop and subscriber-caused problems, TV-set fine tuning adjustments, no fault found, no one home, and so on.

Typical cable systems have average service-call percentages around 3 percent per month, while well-maintained systems have monthly percentages in the 1 percent range. Monthly figures may be as low as 0.22 percent (very unusual) to as high as 26 percent (also very unusual). If the hypothetical 20,000 subscriber system had a monthly service-call percentage of 26 percent, its staff would be taking care of 5,200 service calls each month, or more than 200 per day. At 0.22 percent, the figures would be 44 per month, or two each day.

Using the 4 percent figure for the hypothetical system, if service calls could be reduced by half—and a good preventive maintenance program has been shown to sometimes have that much impact—corrective maintenance costs would likewise be cut in half. With a 2 percent monthly service-call percentage, our hypothetical system’s staff would have to deal with 400 calls per month, or about 18 a day. At $50 each, that’s an estimated $20,000 per month for corrective maintenance compared to the previous $40,000 per month.

How does that savings actually make it to the bottom line? One way is staff reduction. If each service technician can complete eight calls per day, the first scenario at a 4 percent service-call percentage will require five technicians (technically 4.55, but I’ll round up since I’ve never seen half of a technician). At a 2 percent rate, three technicians could do the work (technically 2.27, but quarter technicians are even harder to find than half technicians), and with a little extra individual productivity, maybe two could do it.

In this particular example, however, an alternative to outright staff reductions should be considered. Instead of laying off competent technicians, they could be given new job assignments, such as full-time preventive maintenance or other technical positions that were to be filled with new hires.

Some might question where the savings are—service calls went down, but staff size stayed the same.

Plans to fill other technical positions with new hires, may be avoided by utilizing existing trained and experienced staff. Staff size remains the same, those new positions are filled with individuals who already know the system and will require little, if any, additional training. Furthermore, because they are experienced, you bypass the usual productivity ramp-up problems. From one perspective, the previously mentioned staff reductions will save actual dollars, but from another perspective, transferring existing staff to other functions will save budgeted dollars.

Moving service technicians into full-time preventive maintenance has a more tangible impact on the bottom line, but one that may not be so obvious at first glance. It is the value of customer goodwill.

Having a dedicated full-time staff performing an effective preventive maintenance program means that the number of service calls will continue to decrease, while system reliability and service quality will improve. A better system results in happier subscribers. Happier subscribers mean less churn.

Churning costs

Consider the value of a subscriber, both from a capital perspective—what the subscriber is worth when the system is sold—and a gross revenue perspective. For the former, let’s use $4,000. For the latter, $35 per month over a subscriber life of five to seven years (this may vary depending on how a company calculates subscriber life) works out to between $2,100 and $2,940 in gross revenue. As you can see, each subscriber is valuable.

Churn is categorized as controllable and noncontrollable. Noncontrollable churn averages about 15 percent per year and is mostly attributable to subscribers who move. The actual figure varies from market to market, but in the hypothetical system, 15 percent is 3,000 subscribers per year. Controllable churn—nonpay disconnects, dissatisfied subscribers and so on—may comprise an additional 15 to 25 percent, or, in the case of the hypothetical system, between 3,000 and 5,000 subscribers per year. Here, too, the actual figure will vary from market to market. A conservative rate for the hypothetical system would be an annual controllable churn of 10 percent, or 2,000 subscribers per year. What happens if that figure is reduced to 9.7 percent? In other words, controllable churn needs to be reduced from 2,000 subscribers per year to 1,940 per year, by "saving" 60 subscribers.

If service-call reduction efforts prevent just five subscribers from disconnecting each month, the company saves $20,000 in capital value, $2,100 in annual revenue, and between $10,500 and $14,700 in subscriber life revenue for those same five subscribers. Over the course of a year, 60 subscribers saved are worth $240,000 in capital value, $25,200 in annual revenue, and $126,000 to $176,400 in subscriber life revenue.

While some may or may not agree with the specific figures used in the hypothetical example, the philosophy is what counts. Plug in your own numbers. It’s obvious that customer goodwill has a definite dollar value. If some of that customer goodwill is the result of improved service because of effective preventive maintenance and a corresponding reduction in service calls, then those maintenance efforts become pretty much self-funding.

In the past, many disgruntled subscribers who disconnected eventually came back. In today’s environment, with multichannel multipoint distribution service (MMDS), direct broadcast satellite (DBS) and other competition, disgruntled subscribers have the opportunity to take their business elsewhere and never come back, making it all the more important to ensure the best service possible is provided.

This article has been updated from a column that ran in CT in June 1996.

Ron Hranac is a consulting systems engineer for Cisco Systems, and senior technical editor for Communications Technology. You may reach him at .

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