Scraping Rock Bottom

US Carriers Fight Churn


In a market where mobile operators cut prices and offer special incentives to attract subscribers from rivals, logic would suggest that churn rates would be rising. In this regard, US carriers have been defying the odds, increasing loyalty in the face of circumstances that should be pushing churn higher.

In the second quarter of 2017, the major US wireless carriers reported churn rates at, or close to, record lows. Post-paid phone churn, perhaps the most important indicator, was particularly impressive.

Specifically, monthly post-paid phone churn was at 0.79 percent for AT&T, 1.1 percent for T-Mobile and 0.7 percent for Verizon. These were noticeable improvements both yearly and sequentially. Even Sprint — by far the weakest post-paid wireless carrier in the US — reported post-paid phone churn of 1.5 percent, up on previous quarters, but down year-on-year.

Carriers found clever ways of holding onto their customers during the quarter, particularly by embracing unlimited data plans. 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 will undoubtedly put more focus on subscriber acquisition to drive growth.

Recently, the US market saw the entry of a major new wireless rival, Xfinity Mobile, which is offering extremely competitive pricing to customers in 26 million households. And a majority of smartphones in use can now be used across the aisle, enabling subscribers to keep their phones while changing service providers. Neither of these factors appears to have affected churn. Despite generous port-in offers, smartphone giveaways and no-contract plans, a rising number of subscribers are staying put, which could well be lulling carriers into a false sense of security.

Nonetheless, there are some recurring initiatives from carriers to lower churn. They all apply some form of interest-free device financing, an attractive method that allows customers to use a late-model, high-end smartphone. Devices tend to be financed for at least 24 months, which helps keep users around.

If device payment plans create stickiness from one side of the equation, loyalty programmes are an attempt to build devotion from the other. For example, T-Mobile Tuesdays is the carrier's "customer appreciation" scheme, which offers subscribers discounts and prizes.

AT&T is working on a bundle strategy, packaging fixed-line and wireless services and content to create a chemical formula of consistency. In other markets, we have observed how bundling telecom services helps lower churn by locking in customers to a single provider. Low churn creates consistent and reliable revenue streams for operators. It lowers the risk of network investments.

A certain equilibrium was created in the US during the past few quarters. Unlimited data offers have become table stakes and subscribers have learned all about the trade-offs between network connectivity speeds and cost.

"Abandonment issues" are a concern for all operators. As we move into another Apple upgrade cycle, there'll be wild deals to attract frantic iPhone aficionados. 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.

If churn numbers remain low, it will be a reassurance for the big wireless carriers in the US. Customer retention has been eating into margins, but profits have been solid for the top-three providers: AT&T, Verizon and T-Mobile. 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.

This entry was posted on August 31st, 2017 and is filed under Services. You can follow any responses to this entry through the RSS 2.0 feed or you can leave a response.

Posted By Raghu Gopal On August 31st, 2017


Comments
John
- 2017-09-01 at 22:27
Good analysis ! Do you know how which is the cost of acquiring a wireless customer?
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