As the second-quarter earnings season comes to a close, industry analysts are sifting through the results to discern where the wireless industry is headed. And one prominent statistic to emerge from this quarterly analysis are carriers’ noteworthy improvements in retaining customers – although some analysts believe this situation won’t last long.
According to a pair of new financial reports, industry churn (a measurement of how many customers are discontinuing service at their carrier) is at a record low, largely due to improvements at T-Mobile and Sprint. Indeed, both carriers have been working to improve their networks and their offerings in order to attract and retain customers, and that effort appears to have played out based on their respective second-quarter earnings reports: T-Mobile reported “record-low” branded postpaid phone churn of 1.27 percent, while Sprint notched its “lowest postpaid phone churn in company history” at 1.39 percent.
“It is interesting that S and TMUS both saw material decreases in postpaid churn to below their historical levels,” analysts at Evercore noted in a research note. “Importantly, while S is touting its network as the main reason for its improvement in churn, it does not appear that S is investing enough in the long-run to keep its subs. As such, we point instead to the current environment for the reduction in churn.”
Added the analysts at New Street Research in their own recent report: “Postpaid handset churn has come down 12bps since 1Q13, with the entirety of this decrease attributable to declines at the challengers, Sprint and TMUS. Indeed, incumbent churn has been flat over the same period, compared to a 58bps decline at the challengers. We expect this convergence of churn trends to continue as the incumbents lose their historical network advantage amid an onslaught of usage growth.”
In a New Street chart of the industry’s postpaid churn, both Verizon and AT&T have hovered at around 1 percent churn for the past four years. Sprint and T-Mobile, meanwhile, have both declined from a high of around 2.5 percent in 2012 to recent figures much more in line with those from AT&T and Verizon.
Those declines are significant considering both Sprint and T-Mobile have engaged in massive corporate turnarounds in recent years, with CEO John Legere pushing various “uncarrier” promotions at T-Mobile and CEO Marcelo Claure working to improve Sprint’s corporate positioning, pricing and network.
Despite record low levels of churn in the wireless industry in the second quarter, analysts pointed to signs that those figures may rise as 2016 proceeds. “We expect churn and upgrades to ramp after the iPhone launch, accelerating growth at the challengers and declines at the incumbents and pressuring margins across the board. These trends reinforce our cautious stance on VZ and AT&T (estimates look too high); and our bullish view on TMUS,” the analysts at New Street wrote.
Related articles:
AT&T loses 180K postpaid phone subs, adds 2.1M overall connections
Sprint posts 173K postpaid phone net adds, $302M net loss
Verizon posts 86K net postpaid phone adds, slows prepaid losses