Intense Competition Could Increase Sprint’s Churn Rate

In this part of the series, we’ll look at Sprint’s (S) customer retention metric: churn rate. Sprint’s management expects postpaid phone churn to rise, mainly due to continued competitive intensity in the postpaid space and more aggressive promotional offers from competitors due to the introduction of unlimited plans in fiscal 4Q16 (ended March 31, 2017).

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

In fiscal 3Q16, Sprint’s postpaid phone churn rate rose YoY (year-over-year). Its postpaid phone churn of ~1.6% in fiscal 3Q16 was more than the comparable figure of ~1.5% in fiscal 3Q15 due to elevated competition from other wireless carriers.

Among the top four US mobile players, Verizon (VZ) continued to have the best postpaid phone customer retention in calendar 4Q16. Verizon and AT&T (T) had postpaid phone churn rates of 0.90% and 0.98%, respectively, that quarter. T-Mobile (TMUS) reported a postpaid phone churn rate of 1.3%.