Detecting the risk of customer churn in telecom sector: a comparative study

Abstract

Churn rate describes the rate at which customers abandon a product or service. Identifying churn-risk customers is essential for telecom sectors to retain old customers and maintain a higher competitive advantage. The purpose of this paper is to explore an effective method for detecting the risk of customer churn in telecom sectors through comparing the advanced machine learning methods and their optimization algorithms. Based on two different telecom datasets, Mutual Information classifier was firstly utilized to select the most critical features relevant to customer churn. Next, the controlled-ratio undersampling strategy was employed to balance both minority and majority classes. Key hyperparameter optimization algorithms of Grid Search, Random Search, and Genetic Algorithms were then combined to fit the three promising machine learning models-Random Forest, Support Vector Machines, and K-nearest neighbors into the customer churn prediction problem. Six evaluation metrics-Accuracy, Recall, Precision, AUC, F1-score and Mean Absolute Error, were last used to evaluate the performance of the proposed models. The experimental results have revealed that the RF algorithm optimized by Grid Search based on a low-ratio undersampling strategy (RF-GS-LR) outperformed other models in extracting hidden information and understanding future churning behaviors of customers on both datasets, with the maximum accuracy of 99% and 95% on the applied dataset 1-2 respectively.