Major U.S. carriers have enjoyed shrinking churn rates in recent quarters even as the market has reached saturation, CCS Insight noted. But that may change as competition heats up amid the release of some compelling high-end phones.
Postpaid churn is a crucial metric for the wireless industry, of course, and Verizon, AT&T and T-Mobile all saw churn decrease both yearly and sequentially in the second quarter. Sprint’s postpaid churn of 1.5% was worse than its rivals and was up from previous quarters, Raghu Gopal of CCS said in a blog post, but was down annually.
“Carriers found clever ways of holding onto their customers during the quarter, particularly by embracing unlimited data plans,” Gopal wrote. “As a rule, the cost of acquiring new customers is higher than the cost of retaining existing ones. On the face of it, it would appear that the dust has settled. However, we question whether such retention rates can last. Falling prices and growing consumption undoubtedly put more focus on subscriber acquisition to drive growth.”
And joining the unlimited bandwagon isn’t the only card up carriers’ sleeves as they try to entice customers to stick around. Loyalty programs such as T-Mobile Tuesdays may be effective, 24-month, interest-free financing programs all but ensure customers stay for least two years and AT&T’s bundled-services strategy may prove compelling.
But the effectiveness of such moves may also be “lulling carriers into a false sense of security” at a time when they’re actually becoming more vulnerable. The holiday shopping season approaching, and vendors including Samsung, Apple and Google are prepared to chum the wireless waters with the release of new, high-end handsets.
Network operators are sure to try to leverage those new phones with aggressive promotions to boost their market share at a critical time of year. Those who fail to do so may pay a hefty price.
“The calm of recent quarters could well be the result of customers awaiting new flagship phones and the opportunity to switch to the most competitive offers. Operators know that flagship season is the best time to entice customers, so long as the company is willing to compete and absorb big rises in subscriber acquisition and even retention costs,” Gopal wrote. “Third-quarter results are more than a month away, but churn rates will be a most interesting statistic to monitor. Our bet is that costs will rise, margins will shrink and churn will spike, at least for those not prepared to foot the bill for growth.”