Why Apple’s iPhone 7 Could Increase AT&T’s Churn Rate in 4Q16

In the last part of this series, we learned about why AT&T (T) is focusing on gaining prepaid customers. Now let’s talk about AT&T’s customer retention metric, the churn rate in overall domestic wireless operations. AT&T expects postpaid phone churn to increase mainly due to the release of Apple’s (AAPL) iPhone 7 in September 2016, as many customers changed their carriers to opt for the best wireless plan.

An increase in churn rate is negative for telecom companies because they have to deal with additional acquisition costs associated with customers, which has a further negative impact on companies’ operating margins. As a result, an increase in churn rate could be a cause of concern for investors.

Among the top four largest US mobile players, Verizon (VZ) continued to have the best postpaid phone customer retention in 3Q16. Verizon has the best churn rates in the industry at around 0.90% for the last six consecutive quarters. AT&T, T-Mobile (TMUS), and Sprint (S) have higher churn rates of 0.90%, 1.32%, and 1.37%, respectively.

The proposed acquisition of Time Warner (TWX) enhances AT&T’s ability to create opportunities for bundling of services together, which would help lower AT&T’s churn rate, boosting wireless margins.

In the next part, we’ll discuss AT&T’s expected capex investments in 2016.