The name of the game in the U.S. wireless industry has been known to the Tier 1 carriers for some time now: Go after switchers, and get customers to port over from competing carriers. However, with postpaid churn at Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) so low, getting those customers to move will remain an uphill battle for smaller competitors Sprint (NYSE:S) and T-Mobile US (NYSE:TMUS).
According to a Wall Street Journal report citing data from investment bank UBS, postpaid churn last year was just 0.91 percent for Verizon and 1.08 percent for AT&T. (In the second quarter, Verizon reported postpaid churn of 0.93 percent and AT&T reported postpaid churn of 1.02 percent.) And, according to UBS, last year the Tier 1 carriers added only about a net 3.3 million subscribers, and Verizon and AT&T accounted for all of them.
Part of the reason churn is so low is because customers sign two-year contracts with high early termination fees. Another is that many customers are on family or enterprise plans, which are often more "sticky" and make it more difficult for customers to switch carriers. Still another reason Verizon and AT&T have built up an advantage is that their LTE networks are larger than Sprint and T-Mobile's, though the smaller carriers are working feverishly to catch up (both have pledged to cover 200 million POPs with LTE by year-end).
Yet the competitive forces of the market are starting to shift, if ever so slightly. Now that SoftBank controls Sprint, SoftBank CEO Masayoshi Son has pledged to make Sprint into a more aggressive competitor. Part of that strategy was hinted at this week when Sprint revealed it will use the 2.5 GHz spectrum it acquired from Clearwire in a nationwide deployment into this year and next, which should significantly increase the network speeds and capacity of Sprint's LTE offering.
For now, Sprint is keeping its unlimited smartphone data pricing, and recently promised to give customers unlimited data for life as long as they remain Sprint customers. CEO Dan Hesse said that promise could encourage customers to switch to Sprint: "We want to eliminate the fear that the rug was going to be pulled out from under them," he told the Journal.
But Hesse acknowledged that it is more difficult to get customers to switch carriers. For that reason he said Sprint does market research to figure out the reasons that would get customers to switch to the company or what would keep them from trying Sprint.
Meantime, T-Mobile's "un-carrier" strategy is built around no-contract service offerings and the ability to finance device costs over time. The company's rate plans are cheaper than those of its competitors. And T-Mobile has been refarming spectrum to build out LTE, though its LTE deployment still lags Verizon and AT&T (T-Mobile's LTE network currently covers 157 million POPs in 116 markets).
T-Mobile CMO Mike Sievert told the Journal that low churn won't stop it from getting back to subscriber growth, and said the carrier's cheaper prices, its new Jump device handset upgrade program, and its improved network will bring subscriber growth benefits. "It is a mature industry, but there is still a lot of switching," he said. "If you can get a disproportionate share of the people that do switch, even with today's industry churn rates, then you will start to grow."
- see this WSJ article (sub. req.)
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