Wall Street analysts fret over the growing number of customers ditching Sprint

Smartphone shopper
Sprint's churn rate is causing concerns among Wall Street analysts. (Pixabay/JESHOOTS)

AT&T, Verizon and T-Mobile have all reported record-low churn figures in recent quarters, but Sprint is reporting the opposite.

“Postpaid phone churn [at Sprint] is now clearly moving in the wrong direction, up yoy for the fifth straight quarter (at a time when peers are seeing record-low levels),” wrote the analysts at Deutsche Bank Markets Research in a note to investors issued yesterday. “This, combined with moderating gross add momentum this quarter drove postpaid phone net adds which lagged each of its three national peers. Looking forward, we expect elevated churn to persist near-term, as newer customers start rolling off promotional pricing in early 2018 (at a time when peers have upped the ante on unlimited).”

The analysts attributed the increased churn to Sprint’s network performance in select locations, the end of some of Sprint’s leasing offers, and increased competition from Sprint’s rivals in the form of unlimited data offers.

RELATED: As promotional pricing ends, some Sprint customers to see bigger monthly bills

Moreover, Sprint’s churn rate—industry vernacular indicating the number of customers who are leaving—is expected to continue to rise this year. Indeed, the analysts at Wall Street research firm Cowen and Company wrote that they don’t think Sprint will continue to report positive postpaid customer net additions, as it did in its most recent quarter, because of “intensifying competition” and rising churn.

During the company’s quarterly earnings call with investors late last week, Sprint’s management acknowledged the company’s churn problem.

“Postpaid churn was 1.71%. We recognize that our churn is higher than our peers,” CEO Marcelo Claure acknowledged last week, according to a Seeking Alpha transcript of the event. He said the carrier has implemented a new “tool” called quality of experience (QoE), which he said would allow Sprint to improve its network in select areas to bring its churn levels more in line with those of its competitors.

However, Claure said Sprint’s churn levels likely won’t ever come down to the levels maintained by the likes of Verizon and T-Mobile.

“We have also made the decision to manage the business at a higher churn rate,” Claure explained. “We're selectively managing higher ARPU subs in our base, as they do not have access to our more aggressive offers. And some are above our competitor rate for unlimited plans. We're comfortable using this strategy as it creates more enterprise value to have a higher churn than to write down our base. We also see some churn pressure from leasing, but would believe that the total economics of leasing more than compensates for higher churn level.”

And not surprisingly, Claure predicted Sprint’s customers would begin to stick around in greater numbers as Sprint launches 5G services through next year.

“Now, as we predict churn, as we look at our churn models obviously, we're going to look at churn coming down in the next few years as we do our investment in our network and as we roll out our 5G network. So we know exactly what churn is going to be. We can predict it and we feel that next year churn will be better than this year's churn,” he said.

Read more on