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Intense Competition Could Increase AT&T’s Churn Rate in 1Q17

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Intense competition could increase churn rates for AT&T

In the last part of this series, we learned about AT&T’s (T) 1Q17 postpaid phone net additions. Now let’s talk about AT&T’s customer retention metric, its churn rate, in terms of overall domestic wireless operations.

AT&T expects its postpaid phone churn to rise mainly due to the continued competitive intensity in the postpaid space and more aggressive promotional offers from its competitors due to their introductions of unlimited plans in 1Q17.

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A rise in the churn rate is negative for telecommunications companies because they have to deal with additional acquisition costs associated with customers, which has a further negative impact on their operating margins. As a result, a rise in the churn rate could be a cause for concern for investors.

However, the proposed acquisition of Time Warner (TWX) should enhance AT&T’s ability to create opportunities for the bundling of services, which could help to lower AT&T’s churn rate, thereby boosting its wireless margins.

Peer comparison of postpaid phone churn in 4Q16

Among the top four largest US mobile players, Verizon (VZ) continued to have the best postpaid phone customer retention in 4Q16. The carrier maintained postpaid phone subscriber churn of 0.90% for the seventh consecutive quarter in 4Q16. This could be significant given that T-Mobile (TMUS) and Sprint (S) have made much of their abilities to steal customers from other carriers, including Verizon and AT&T.

In 4Q16, AT&T and Sprint had postpaid phone churn rates of 0.98% and 1.6%, respectively. Meanwhile, T-Mobile reported a postpaid phone churn rate of 1.3% in 4Q16.

Continue to the next article for a look at AT&T’s prepaid phone net additions.

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