Tucows CEO Elliot Noss said that the company's Ting Mobile MVNO added fewer net new customers in the third quarter than it did a year ago but that the period represented Ting's best ever in terms of gross additions. Ting's service runs on Sprint's (NYSE: S) network and also has supported GSM service since March, likely via T-Mobile US' (NYSE:TMUS) network. As a unit of a publicly traded company, Ting is one of the few MVNOs that breaks out its subscriber and financial metrics.
Ting Mobile added 9,000 accounts and 14,000 devices in the third quarter, an 8 percent jump in the customer base. However, those figures were lower than the 11,000 accounts and 17,000 devices Ting added in the year-ago period and the 10,000 accounts and 15,000 devices the company added in the second quarter. At the end of the quarter, Ting had 122,000 accounts and 192,000 devices (customers can have family share plans, where devices share pooled usage). Ting's rate plans let customers mix and match different usages for voice minutes, text messages and data.
"We're not satisfied that net adds have essentially stayed the same over the past few quarters, but we're comforted that gross adds continues to grow," Noss said on Tucows' earnings conference call, according to a Seeking Alpha transcript. "Q3 was the biggest quarter for gross adds in the history of Ting. Was also the biggest quarter for new visitors and total traffic to the website. This indicates that our brand awareness continues to grow and that we continue to convert well on that awareness. Brand awareness is by far the metric with the greatest upside in this business. Our acquisitions suggest that more people are hearing about us every day and that our message is as compelling and our offering is competitive as ever."
However, Noss noted that Ting is seeing slightly higher churn, which he said is "still mostly just a product of a growing base."
"We did see a slight uptick in our churn rate in Q3 to just under 2.5%," he said. "This appears to be partly the result of a more transient customer base on the GSM service, which makes sense given the increased device portability on that side. These customers typically make less effort and investment to come to Ting, generally bringing their own phones and seem a bit more likely to leave as well."
Earlier this year Ting experienced problems with customer service as a result of changes Sprint made to its rules for devices that customers want to take to MVNOs. In February Sprint instituted a "Financial Eligibility Date (FED)" validation on its devices, which was part of the carrier's commitment to unlock its devices. Sprint is using the FED system to make sure that customers who activate their Sprint device on another carrier or service provider, such as an MVNO, have paid for their device. Under the system, customers who still owe money on their devices can't activate them elsewhere, which affected Ting.
Noss acknowledged that Ting is "perhaps also seeing some lagging followed from our customer service issues of the prior quarters. In fact this shows up on both the acquisition side and the retention side. Customer referrals, which have always been the centerpiece of our acquisition efforts, have been down since the Sprint change in Q1 and resulted in support shortfalls. I'm relieved to report that we're once again staffed ahead of our most optimistic projected support volumes and I'm hopeful that this will restore customer referrals and suppress churn a bit in quarters to come."
In terms of other metrics, Noss said that average customer revenue has ticked up a couple of dollars in recent months to around $37 a month, with a phone bill of $23 to $24 per device. He also added that gross margins "are a little higher than the top-end of our range, thus north of 50%." Average cost per subscriber acquisition "is still comfortably under $100," Noss said, adding that "even at a churn rate of 2.5%, we're paying under $100 to acquire customers that are providing great cash-on-cash returns.
Even so, Noss noted that the Sprint changes "took a bite out of our conversion and challenged our reputation. Our customer support team got hit hard, which necessitated months without marketing, comprised our services levels, depressed referrals and provoked churn. It also fundamentally changed some of our customer service ratios, leading to understaffing which exacerbated the problem."
"We realized that the recovery is not quite a switch from off to on, but a process that takes time and effort to regain the momentum," Noss said. "We are well into that now and I believe our greatest assets are intact. We have a pricing plan that can save the overwhelming majority of Americans hundreds of dollars a year on those telephone bills."
Despite the challenges, Noss contended that Ting "still offers the greatest customer experience and support in the industry as validated by our consistently strong net promoter scores. And in the midst of that adversity and that quiet period, we actually added a second network that gives our customers even greater choice of devices and coverage. Plus, we are coming into this holiday season with an opportunity we've never had before."
Ting just entered into partnerships with supermarket chain Krogers and retailer Staples to distribute Ting SIM cards in nearly 2,000 stores across the country. "We have no idea how this program will perform or what volume of new customers these deals would contribute to our business," Noss said. "But I am proud to be keeping that sort of company, I am thrilled about what that sort of presence does for our mainstream awareness and credibility and I am confident now that we will discover more opportunities like these in 2016."
- see this Seeking Alpha transcript
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