A Model-Agnostic Interpretability Approach to Predicting Customer Churn in the Telecommunications Industry

Abstract

Customer churn is critical for businesses across various industries, especially in the telecommunications sector, where high churn rates can significantly impact revenue and growth. Understanding the factors leading to customer churn is essential for developing effective retention strategies. Despite the predictive power of machine learning models, there is a growing demand for model interpretability to ensure trust and transparency in decision-making processes. This study addresses this gap by applying advanced machine learning models, specifically Naïve Bayes, Random Forest, AdaBoost, XGBoost, and LightGBM, to predict customer churn in a telecommunications dataset. We enhanced model interpretability using SHapley Additive exPlanations (SHAP), which provides insights into feature contributions to predictions. Here, we show that LightGBM achieved the highest performance among the models, with an accuracy of 80.70%, precision of 84.35%, recall of 90.54%, and an F1-score of 87.34%. SHAP analysis revealed that features such as tenure, contract type, and monthly charges are significant predictors of customer churn. These results indicate that combining predictive analytics with interpretability methods can provide telecom companies with actionable insights to tailor retention strategies effectively. The study highlights the importance of understanding customer behavior through transparent and accurate models, paving the way for improved customer satisfaction and loyalty. Future research should focus on validating these findings with real-world data, exploring more sophisticated models, and incorporating temporal dynamics to enhance churn prediction models' predictive power and applicability.