Verizon’s postpaid phone churn in 1Q17
In the previous part of this series, we discussed Verizon’s (VZ) prepaid subscriber net additions over the last few quarters. In this part, we’ll look at Verizon’s customer retention metric, the churn rate. Verizon continued to face headwinds in the US wireless market due to aggressive promotional offers from competitors. However, during its 1Q17 earnings conference call, Verizon’s management stated that postpaid phone churn improved after the unlimited plan was launched, and that it remained less than 0.90% in 1Q17 for the eighth consecutive quarter. This improvement may be significant given that T-Mobile (TMUS) and Sprint (S) have made much of their ability to steal customers from other carriers, including Verizon and AT&T (T).
Peer comparison of postpaid phone churn in 1Q17
Among the four largest US mobile players, Verizon continued to have the best postpaid phone customer retention in 1Q17. AT&T and T-Mobile had postpaid phone churn rates of 0.90% and 1.18%, respectively. Meanwhile, Sprint reported a postpaid phone churn rate of 1.6% in fiscal 4Q16, which ended March 2017.
However, Verizon’s postpaid churn increased from 0.96% in 1Q16 to 1.15% in 1Q17. This increase was mainly due to increased churn from customers who signed a two-year tablet agreement. The rate is expected to remain elevated in 2017 as promotions roll off.
An increase in churn rate is negative for telecom companies because they have to deal with additional acquisition costs associated with customers, which impacts companies’ operating margins. Therefore, an increase in churn rate could be a cause for concern for investors.