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Apple iPhone 7 Could Increase Churn Rate for Sprint in Fiscal 3Q16

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Sprint’s postpaid phone churn in fiscal 3Q16

Sprint (S) expects its postpaid phone churn to rise mainly due to the release of Apple’s (AAPL) iPhone 7 in September 2016, as many customers have changed their carriers to opt for better wireless plans.

Remember, any increase in churn rate is negative for a telecom company because it has to deal with additional acquisition costs associated with customers, which have further negative impacts on companies’ operating margins. For this reason, Sprint’s rise in churn rate could be a cause of concern for investors.

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In fiscal 2Q16, Sprint’s reported postpaid phone churn of 1.37%, which was lower than the comparable figures of 1.49% in fiscal 2Q15 and 1.39% in fiscal 1Q16. Sprint’s postpaid phone churn was modestly better in 2Q16 because the company highlighted an improved network and a tighter credit strategy. This is attracting higher quality customers and has allowed Sprint to focus on a better customer experience.

Peer comparisons of postpaid phone churn

Although Sprint has made remarkable progress in bringing down its postpaid phone churn, the metric remains well above Verizon Communications’ (VZ) and AT&T’s (T) churn rates. In calendar 3Q16, AT&T, Verizon, and T-Mobile (TMUS) had postpaid phone churn rates of 0.90%, 0.90%, and 1.32%, respectively. Verizon has had the best churn rates in the industry for the past six quarters.

Notably, for the second consecutive quarter, Sprint has claimed that it had positive postpaid porting ratios, as compared to the other big three national wireless carriers. (Porting ratio refers to the ratio of net subscriber additions to net losses.)

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