Why Sprint’s churn rate remains the worst in the industry

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Sprint’s churn rate is the worst in the industry

In the previous part of this series, we discussed how Sprint (S) is working on improving its network’s performance, which is currently the worst in the industry. Another repercussion of its low-performance network is the company’s churn rate.

As the chart below shows, Sprint’s churn rate at 2.09% is the worst in the industry. AT&T’s is (T) the best. Verizon (VZ) and T-Mobile (TMUS) take the second and third spots, respectively, among major telecom players in the U.S.

A higher churn rate means subscribers move out of Sprint’s network too often, raising the costs associated with acquiring a new customer.

Sprint is hopeful that its churn rates will improve in the next quarter

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During the conference call to announce its 2Q14 earnings, Sprint’s management mentioned that the network transition from 3G to LTE affected the performance of its voice and data service. The company also mentioned that its churn levels begins to stabilize in the markets where its network replacement is 70% or more complete and for a certain period. For example, the churn rates are 14 basis points better in markets where the network is at least 70% complete for seven months or longer.

The churn rates improved a further 22 basis points in markets where the network is complete at least 70% for ten months or more. So management is confident that churn rates should improve. Management also mentioned that, historically, it has seen churn rates increase by 20 basis points on average from the second quarter to the third quarter. But this time, management is confident that churn rates will improve sequentially from the second to third quarter.

Improving churn rates would not only help Sprint’s investors but also exchange-traded funds (or ETFs) such as the iShares U.S. Telecommunications ETF (IYZ) that have high exposure to Sprint.

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