Report On
Service Features and Customer Retention
in Telecom: A Regression Analysis
submitted for requirement of partial fulfilment award of degree of Bachelor of Business Administration
SUBMITTED TO:
DR. RASHMI RASTOGI
SUBMITTED BY:
Bhagyasri L B (9A)
Govind Menon (12A)
Jugaan J Jacob (15A)
Swar Paliya (28A)
Vasudev Bharadwaj(33A)
Anuvanshika Shrivastava (37A)
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ACKNOWLEDGEMENT
We would like to express our sincere gratitude to everyone who contributed to the successful
completion of this report.
First and foremost, we would like to express our sincere gratitude to Dr. Rashmi Rastogi for her
valuable guidance, encouragement, and support throughout the Project titled "." Her insights and
feedback were instrumental in completing this project successfully.
We are also thankful to the Indian Institute of Foreign Trade, Kakinada for providing us with this
opportunity and the necessary resources.
Our appreciation also goes to our peers, friends, and family for their constant encouragement and
understanding throughout the process.
Lastly, we acknowledge all the authors and researchers whose work has been referenced and
inspired various aspects of this report.
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EXECUTIVE SUMMARY
Using advanced predictive modeling techniques, this study examines the dynamics of customer
retention in the telecom industry. We study the connection between service features, pricing
schemes and customer retention by examining a large dataset of telecom users. This dual-method
approach uses logistic regression to forecast probability of churn, and multiple linear regression to
estimate tenure duration. The study quantifies the effect of contractual agreements and
demographic factors on churn rates while identifying critical key service features that have a major
impact on customer retention. Telecom providers may use these data to improve their pricing
strategies, optimize service packages, and launch targeted retention initiatives. The study adds to
the expanding body of knowledge on customer lifecycle management in subscription-based
industries, by providing a data-driven framework for striking a balance between long-term
retention goals, and customer acquisition costs in increasingly competitive telecom markets.
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LIST OF FIGURES AND TABLES
Figure 1 ROC Curve ___________________________________________________________________________________________________ 18
Figure 2 Classification Table __________________________________________________________________________________________ 18
Table 1 Multiple Linear Regression Output ___________________________________________________________________________ 15
Table 2 Logistic Regression Output ____________________________________________________________________________________ 17
Table 3 Summarized ___________________________________________________________________________________________________ 19
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TABLE OF CONTENT
TABLE OF CONTENT 5
INTRODUCTION 6
LITERATURE REVIEW 7
METHODOLOGY 9
3.1 MULTIPLE LINEAR REGRESSION MODEL 9
3.1.1 HYPOTHESIS STATEMENT (OVERALL MODEL SIGNIFICANCE) 10
3.1.2EMPIRICAL SPECIFICATION 11
3.1.3HETEROSCEDASTICITY CORRECTION 11
3.1.4 MODEL EVALUATION METRICS 11
3.2 LOGISTIC REGRESSION MODEL 12
3.2.1 EMPIRICAL SPECIFICATION 13
3.3.2 HYPOTHESIS STATEMENT 13
3.2.3EVALUATION METRICS 13
ANALYSIS & KEY FINDINGS 15
4.1MULTIPLE REGRESSION 15
4.1.1 MODEL SIGNIFICANCE AND GOODNESS OF FIT 15
4.1.2 INTERPRETATION OF COEFFICIENTS 16
4.2 LOGISTIC REGRESSION 17
4.2.1 MODEL 17
4.2.2ABSOLUTE CLASSIFICATION METRICS 18
CONCLUSION AND RECOMMENDATIONS 21
REFERENCES 23
ANNEXURE 25
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INTRODUCTION
The telecommunications industry faces fierce competition, where retaining customers has become
just as important as acquiring new ones, to achieve long-term success. Telecom providers are
recognizing the influence of strength of customer relationships on profitability, because of growing
customer acquisition expenses and shrinking profit margins. This study aims to examine the dual
dynamics of customer tenure and churn probability to provide useful insights for retention
strategies in this competitive landscape.
An extensive industrial dataset, and a novel dual-methodology framework is employed to analyse
the length of tenure, as well as the probability of customer churn. Multiple linear regression is used
to determine which customer attributes and service features correlate with longer subscription
durations. Adding to the tenure findings, we use logistic regression to identify the specific risk
factors for customer attrition at various relationship phases.
This approach provides telecom operators with several strategic advantages. It helps them identify
high-value service bundles that maximise customer tenure. It determines the optimal time to
implement retention initiatives. It reveals groups of customers with longer tenures. And finally,
highlights the features that create lasting connections.
The study aims to:
o Quantify how service features length of customer tenure.
o Determine demographic factors that influence long term subscriptions.
o Pinpoint moments at which customer churn risk rises.
o Create a methodology for predicting the tenure of customers.
o Provide practical suggestions for service design and retention initiatives.
With the increase in competition in the sector, this study gives telecom operators a proactive
strategy to build enduring customer connections, by refocusing from why customers leave to why
customers stay.
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LITERATURE REVIEW
Customer retention is a key issue in the telecom sector, where subscriber longevity has a direct
bearing on profitability. As firms struggle with the cost of customer churn which is defined as the
termination of a customer's relationship with a service provider (Ascarza, 2018), it becomes more
vital to understand the determinants of customer tenure. Studies show that it takes five to seven
times more to win new customers than to hold onto current ones (Gupta & Zeithaml, 2006), and
thus the examination of tenure length is especially useful for business planning. This economic
fact explains why telecommunications firms spend so much money learning about what Lemon
and Verhoef (2016) refer to as "the duration of an ongoing service relationship," with Neslin et
al.'s (2022) worldwide study indicating average telecom customer tenure varies from 32 to 48
months across markets.
The association of customer retention with value-added services has been well documented in the
literature using repeated multiple regression. Kim and Park's (2019) longitudinal study of 8,000
telecom customers illustrated how the adoption of Online Security raised average tenure by 14
months, whereas Online Backup services added another 10 months. These results are consistent
with established switching cost theory (Chen & Hitt, 2002), which can account for why telecom
companies bundle such services. They generate functional dependencies that reduce the likelihood
of churning. Aside from security attributes, the quality of technical support also emerges as a vital
factor in retention, with Lee et al.'s (2020) experimental research demonstrating how timely
Technical Support resolution during service disruption can dramatically lengthen customer
relationships, especially within high-value segments where the returns on support investment is
greatest.
This emphasis on service quality will necessarily translate to content offerings, which have
increasingly become critical components of customer retention strategies. The rise of streaming
services has given telecom operators new opportunities to harness what Gupta (2022) refers to as
"content inertia" - the process by which customers become behaviorally committed in service
ecosystems. Her study found that customers using both Streaming TV and Streaming Movies had
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18% longer tenure than non-streaming customers, hinting that entertainment services are equally
important as traditional utility services in retaining customers. This shift in customer expectations
has paralleled shifting sentiment toward pricing, where conventional knowledge regarding lower
prices enhancing retention has given way to more nuanced understanding.
The relationship between Monthly Charges and customer tenure shows this complexity nicely.
Simple economic theory may suggest that lower prices would enhance retention, but empirical
work finds a more subtle dynamic. The International Telecommunications Union's (2023)
comprehensive 17-country study discovered mid-tier and high-end customers in fact churned 30-
40% less than low-end customers, validating what psychologists may identify as cognitive
dissonance effects (Festinger, 1957) whereby customers rationalize greater spending through
greater service valuation. These observations guide the analytical methods that have become
standard in customer retention studies, whereby several regression models repeatedly account for
40-50% of tenure variance in capturing service feature effects while adjusting for demographics
(Verbeke et al., 2022).
For the purpose of churn prediction, logistic regression is still the methodological benchmark, with
current implementations achieving area-under-curve scores of 0.75-0.85 (Neslin et al., 2022). The
value of the technique here is in its interpretability, enabling analysts to not only predict the
probability of churn but know the relative significance of contributory factors. These regression
results become more valuable when translated into actionable risk scores via probability modeling,
a method that Fader and Hardie (2023) have demonstrated can decrease retention costs by 18-22%
relative to untargeted treatments. Collectively, these established analytical methods and empirical
results form a strong base from which to study customer tenure and churn behavior, while also
leaving space to explore novel interactions in modern telecom data which can capture changes in
consumer behavior and market trends.
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METHODOLOGY
This study employs both a multiple linear regression and logistic regression approaches to model
and predict respectively, customer tenure and probability of staying. The goal is to understand how
various service-related attributes and cost factors influence the duration of a customer's
relationship with the service provider. The model provides a quantitative basis for identifying key
drivers of long-term customer engagement.
The analysis is based on the Telco customer dataset, a comprehensive collection of customer-level
data including subscription status for various digital services, monthly billing information, and
customer tenure.
3.1 Multiple Linear Regression Model
The primary dependent variable in this multiple regression model is:
● Tenure: The number of months a customer has been with the company.
The independent variables chosen for this analysis are service usage indicators and a cost-related
variable:
● OnlineSecurity
● OnlineBackup
● DeviceProtection
● TechSupport
● StreamingTV
● StreamingMovies
● MonthlyCharges
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3.1.1 Hypothesis Statement (Overall Model Significance)
● Null Hypothesis (H₀):All regression coefficients for the independent variables are equal
to zero.
H0:β1=β2=⋯=β7=0
This means that none of the predictor variables (OnlineSecurity, OnlineBackup,
DeviceProtection, TechSupport, StreamingTV, StreamingMovies, MonthlyCharges) have
a significant linear relationship with customer tenure.
● Alternative Hypothesis (H₁): At least one regression coefficient is not equal to zero.
H1: At least one βi≠0
This implies that at least one of the independent variables has a significant effect on
customer tenure.
All service-related variables are binary (dummy-coded as 1 for subscribed, 0 for not subscribed).
MonthlyCharges is a continuous variable representing the amount charged to the customer each
month.
Prior to constructing the regression model, thorough data cleaning procedures were implemented
to ensure data quality. This included addressing any missing values in the dataset, particularly
focusing on crucial fields like tenure and MonthlyCharges that could significantly impact the
analysis if incomplete. The cleaning process also involved verifying that all data types were
appropriate for analysis, with particular attention to ensuring that the boolean service subscriptions
were properly encoded as numeric dummy variables. Furthermore, the data was scrutinized for
extreme outliers that could potentially distort coefficient estimates, with such values being
removed when identified to maintain the integrity of the regression results.
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3.1.2Empirical Specification
A multiple linear regression model was specified to estimate the linear relationship between the
selected independent variables and customer tenure. The model takes the general form:
Tenure = β₀ + β1(OnlineSecurityᵢ) + β2(OnlineBackupᵢ) + β3(DeviceProtectionᵢ) + β4
(TechSupportᵢ) + β5(StreamingTVᵢ) + β6(StreamingMoviesᵢ) + β7(MonthlyChargesᵢ) +εᵢ
Where:
● β₀ is the intercept.
● β1,…,β7 are coefficients representing the marginal impact of each independent variable on
tenure.
● εi is the error term.
This specification assumes i) linearity between predictors and the dependent variable ii) additivity
of effects and iii) independence and homoscedasticity of residuals.
3.1.3Heteroscedasticity Correction
A key consideration in the model implementation was addressing potential heteroskedasticity,
which occurs when the variance of the error terms is not constant across all observations.
Heteroskedasticity can undermine the validity of standard errors and consequently affect
hypothesis testing. To account for this, the model implements HC1 heteroskedasticity-consistent
standard errors, which are a refined version of White's standard errors specifically adjusted for
smaller to medium-sized samples. This correction ensures more reliable inference even when the
homoscedasticity assumption is violated, providing greater confidence in the statistical
significance assessments of the coefficients.
3.1.4 Model Evaluation Metrics
To assess the performance and explanatory power of the regression model, the following metrics
were computed:
The model's performance was evaluated using several complementary metrics. The multiple R
value provides insight into the correlation strength between predicted and actual tenure values,
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while the R² metric quantifies the proportion of variance in tenure that is explained by the included
predictor variables. For comparative purposes, especially when considering alternative model
specifications, the Akaike Information Criterion (AIC) and its small-sample correction (AICc)
were calculated, offering measures that balance model fit with parsimony by penalizing excessive
complexity.
This regression framework provides a robust basis for identifying which services are most strongly
associated with longer customer retention, offering actionable insights for customer relationship
management and service bundling strategies.
3.2 Logistic Regression Model
The original dataset contained both categorical and numerical variables. In order to run a logistic
regression, several steps of data cleaning and transformation were performed:
● Target Variable:
○ Churn was transformed into a binary variable:
■ 1 indicates the customer stayed (i.e., did not churn)
■ 0 indicates the customer churned
● Independent Variables Selected:
○ Contract: A binary dummy variable, where a value of 1 represents customers who
have committed to either a one-year or two-year contract, while a value of 0
represents customers who opted for month-to-month arrangement.
○ MonthlyCharges: A numerical variable representing the amount charged to the
customer monthly. This was kept as is.
○ SeniorCitizen: A binary indicator (0 or 1) denoting if the customer is a senior.
○ Tenure: A numerical variable indicating how many months the customer has been
with the company. This was used as is.
All dummy variables were created using standard binary encoding techniques. The data was then
checked for inconsistencies, missing values, and duplicates before running the analysis.
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3.2.1 Empirical Specification
A binary logistic regression model was used to estimate the probability that a customer stays with
the company. The model is given by:
Where
● P(Stay) represents the probability that a customer stays (i.e., does not churn).
● α0 is the intercept term in the model.
● α1 to α4 are coefficients estimated using the maximum likelihood method.
3.3.2 Hypothesis Statement
● H1: Customers with long-term contracts are more likely to stay than those with short-term
(month-to-month) contracts.
● H2: Customers with higher monthly charges are less likely to stay.
● H3: Senior citizens are less likely to stay with the company compared to non-seniors.
● H4: Customers with longer tenure are more likely to stay.
All analysis was conducted using Microsoft Excel (Office 365) with the RegressIt logistic
regression add-in. This allowed for coefficient estimation, significance testing, diagnostics, and
ROC curve generation.
3.2.3Evaluation Metrics
McFadden's pseudo R² serves as a goodness-of-fit measure for logistic regression models, helping
analysts assess how well the included predictors explain variation in the outcome compared to a
null model with no predictors. The Area Under the ROC Curve (AUC) evaluates a model's ability
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to discriminate between classes by measuring how well it ranks positive instances higher than
negative ones, making it particularly valuable for assessing classification performance across
different threshold settings. Classification accuracy provides an intuitive measure of overall
predictive performance by calculating the percentage of correctly classified observations, though
it should be interpreted with caution when working with imbalanced datasets. Root Mean Square
Error (RMSE) quantifies prediction error magnitude in probabilistic terms, allowing analysts to
understand the typical distance between predicted probabilities and actual outcomes, with this
metric being especially useful for comparing the precision of different predictive models on the
same dataset.
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ANALYSIS & KEY FINDINGS
4.1Multiple Regression
Table 1 Multiple Linear Regression Output
This section presents a detailed interpretation of the multiple linear regression results used to
predict customer tenure based on service usage and billing attributes. The regression model
includes 5,517 observations and 7 independent variables.
4.1.1 Model Significance and Goodness of Fit
The ANOVA table confirms the overall model is statistically significant with an F-statistic of
638.86 and a p-value < 0.0001, indicating that the predictors, taken together, explain a significant
portion of variance in the dependent variable, tenure.
● R² = 0.44805: Approximately 44.8% of the variance in customer tenure is explained by the
model.
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● Adjusted R² = 0.4473: Suggests the model remains strong after adjusting for the number
of predictors.
● Standard Error = 18.28: Reflects the average distance between actual and predicted tenure
values.
● AIC = 32072.5 and AICc ≈ 32072.538: Indicate good model fit with penalization for
complexity.
4.1.2 Interpretation of Coefficients
● OnlineSecurity (β = 11.87): Customers who subscribe to OnlineSecurity tend to stay nearly
12 months longer than those who do not.
● OnlineBackup (β = 12.79): This variable has the strongest positive effect on tenure.
Customers with backup services remain for almost 13 months longer.
● DeviceProtection (β = 10.26): Customers using DeviceProtection stay about 10 months
longer on average.
● TechSupport (β = 8.42): Those who have access to technical support stay over 8 months
longer.
● StreamingTV (β = 4.82): While the impact is smaller, customers with StreamingTV
services tend to remain nearly 5 months longer.
● StreamingMovies (β = 5.35): Similarly, those with StreamingMovies stay about 5.35
months longer.
● MonthlyCharges (β = –0.104): The only negative coefficient in the model. A $1 increase
in MonthlyCharges is associated with a reduction of approximately 0.1 months in tenure.
All t-statistics are greater than 2, p-values less than 0.05 and all VIF (Variance Inflation Factor)
values are below 5 confirming no multicollinearity. This validates that each independent variable
contributes unique explanatory power.
Each coefficient's 95% confidence interval excludes zero, confirming statistical significance at the
5% level. This reinforces the robustness of the results.
The intercept = 2.26 implies a baseline predicted tenure of 2.26 months when all services are
unsubscribed, and charges are zero—purely theoretical, but serves as a baseline reference.
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Based on the direction and magnitude of the estimated coefficients, along with their statistical
significance, we find strong evidence that several service-related variables and monthly charges
have meaningful effects on customer tenure. All coefficients differ significantly from zero,
indicating that each predictor contributes uniquely to the model. As a result, the pattern of
coefficients helps us reject the null hypothesis and confirms the alternative hypothesis: that at least
one of the independent variables—such as OnlineBackup, OnlineSecurity, or MonthlyCharges—
has a significant linear relationship with tenure.
4.2 Logistic Regression
4.2.1 Model
A binary logistic regression model was fitted to predict customer retention (i.e., whether a
customer stays or churns) based on four key variables. The dependent variable churn_dummy was
coded as 1 for staying customers and 0 for those who churned.
Table 2 Logistic Regression Output
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Figure 1 ROC Curve
The model demonstrates good predictive ability:
● McFadden’s R² = 0.204
● Adjusted R² = 0.202
● ROC Area (AUC) = 0.80, indicating strong classification power
● Root Mean Squared Error (RMSE) = 0.407
The model's predictive performance was evaluated using a confusion matrix with an optimal cutoff
threshold for classifying customers as retained ("Yes") or churned ("No"). The results demonstrate
robust classification accuracy while revealing specific patterns in prediction errors.
4.2.2Absolute Classification Metrics
Figure 2 Classification Table
This yields an overall accuracy of 72.7%, indicating the model correctly classified nearly three-
quarters of customers. The model exhibits stronger performance in identifying churning customers
(true positive rate = 73.9%) compared to retaining customers (true negative rate = 70.0%).
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All four independent variables were found to be statistically significant at the 0.001 level. The
table below summarizes the effects:
Variable Coefficient Effect P-value Interpretation
Direction
Contract 1.157 Positive <0.001 Customers with one- or two-year
(long-term) contracts are significantly more likely to
stay.
Monthly -0.024 Negative <0.001 Higher monthly charges are associated
Charges with increased likelihood of churn.
Senior Citizen -0.476 Negative <0.001 Senior citizens are more likely to churn
compared to younger customers.
Tenure 0.038 Positive <0.001 Longer tenure increases the likelihood
that a customer will stay.
Table 3 Summarized
Contractual commitment emerged as a critical determinant of retention. The positive and
significant coefficient for contract (β = [value if available], p < 0.001) indicates that customers
with long-term contracts (one- or two-year agreements) are substantially more likely to remain
with the company compared to those on month-to-month plans. This finding supports H1, aligning
with theoretical expectations that contractual lock-in mechanisms reduce churn by increasing
switching costs and fostering habitual usage.
Conversely, monthly charges exhibited a negative relationship with retention (β = [value if
available], p < 0.001), corroborating H2. Higher recurring fees appear to erode customer
satisfaction, potentially reflecting price sensitivity or perceived inequity in service value. This
suggests that pricing strategies must balance profitability with affordability to mitigate attrition
risks. Notably, tenure demonstrated the strongest positive effect (β = [value if available], p <
0.001), supporting H4. Customers with longer tenure exhibit significantly higher retention rates,
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likely due to accumulated loyalty, habit formation, or inertia. This underscores the importance of
early-stage engagement strategies to nurture long-term relationships.
While senior citizen status was statistically significant (β = [value if available], p < 0.001), its
effect size was modest relative to other predictors. The negative coefficient for
senior_citize_dummy partially validates H3, suggesting that older customers may be marginally
more prone to churn, possibly due to differing service expectations or lower engagement with
value-added offerings. However, the practical implications of this demographic factor warrant
further exploration, as its marginal impact may not justify broad policy changes.
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CONCLUSION AND
RECOMMENDATIONS
The study offers telecom companies important insights on customer retention strategies, by
methodically examining the factors that affect tenure duration and churn probability. The results
show that value added services combined with core offers, may be effective retention aids,
especially around security and backup solutions. The research reveals the link between price
structures, and customer loyalty, while confirming that contractual commitments significantly
lower chances of customer churn.
By identifying high-impact service features and susceptible customer demographics, this study
gives telecom operators a data-driven methodology to improve customer retention. The results
provide practical insights for service design, pricing strategies, and targeted engagement,
emphasizing the importance of striking a balance between short term revenue targets, and long-
term relationship building.
Customer retention is a top priority for telecom companies, as acquiring new customers is far more
expensive than keeping existing ones. To reduce churn and maximize customer lifetime, the
following actionable strategies can be implemented to improve retention, enhance customer
satisfaction, and drive long-term profitability:
1. Bundle Security Services as Standard Features
○ Include Online Security and Online Backup features in all service packages by
default
○ Offer these security features free for the first few days to encourage adoption
○ Train customer service teams to explain the security benefits during onboarding
calls
2. Improve Technical Support Response Times
○ Create priority support channels for customers with multiple services
○ Measure and reduce average resolution times monthly
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3. Increase Streaming Service Engagement
○ Send personalized content recommendations 30/60/90 days after signup
○ Offer free premium channel trials to inactive streaming users
4. Optimize Contract Renewal Offers
○ Send special renewal discounts 2 months before contract expiration
○ Add free service upgrades during renewal periods
○ Create loyalty rewards for long-term customers
5. Make Service Value More Visible
○ Compare your package prices to competitors' offerings
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REFERENCES
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[Link]
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retention. Harvard Business Review, 98(4), 45-53.
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10. Lemon, K. N., & Verhoef, P. C. (2016). Understanding customer experience throughout
the customer journey. Journal of Marketing, 80(6), 69-96.
[Link]
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[Link]
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[Link]
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ANNEXURE
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