An evolving churn management strategy
In the last part of this series, we learned how Mobile Share Value accounts help AT&T (T) manage churn. Now we will focus on the telecom’s other product that helps in churn management.
AT&T’s Next is an installment plan to purchase devices. The customers usually don’t have to make a down payment to buy a smartphone such as Apple’s (AAPL) iPhone in this plan. They can pay for the smartphone in equal monthly installments over 20 to 30 months. They can also upgrade their devices during this period.
Next has evolved as an attractive device financing choice of AT&T’s customers in 2014. Customers on the Next plan represented 27% of the company’s smartphone base at the end of 4Q14. They constituted 8% of the smartphone base in 1Q14.
Other national carriers also offer these installment plans. Verizon (VZ) offers Edge, while Sprint (S) offers Easy Pay. If you want to have diversified exposure to these three telecoms, you can invest in the iShares US Telecommunications ETF (IYZ), the most liquid US telecom ETF. It held ~29% in these three telecoms at the end of January 2015.
Next adoption rate grows
As you can see from the chart above, AT&T’s Next adoption rate increased throughout 2014. In 4Q14, 58% of AT&T’s customers used the Next plan. A total of 5.9 million postpaid smartphone customers, including gross additions and upgrades, took the Next plan during the quarter.
The growth in the Next adoption rate came predominantly from AT&T’s stores and agents. However, the figure for customers choosing the Next plan at retailers distributing AT&T’s products was low during the quarter.