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Could Intense Competition Increase Verizon’s Churn Rate in 1Q18?

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Verizon’s churn rate

In this part, we’ll look at Verizon’s (VZ) customer retention metric, its churn rate. Wall Street analysts anticipate Verizon’s postpaid phone churn rate to increase in 1Q18, mainly due to growing competition in the postpaid market and strong promotional offers from competitors.

In 4Q17, Verizon reported a postpaid phone churn rate of 0.77%, marking the 11th consecutive quarter with a postpaid phone churn rate under 0.90%. Verizon’s management attributed this to strong customer loyalty.

Verizon’s low postpaid phone churn rate might be significant, given that smaller rivals T-Mobile (TMUS) and Sprint (S) have made much of their ability to attract subscribers from other mobile carriers, such as Verizon and AT&T (T).

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Peer comparison

Among the top four major US wireless service providers, Verizon continued to have the best postpaid phone churn rate in 4Q17. In the quarter, Sprint and T-Mobile reported postpaid phone churn rates of 1.7% and 1.2%, respectively, while AT&T’s was 0.89%.

A higher churn rate is adverse for mobile carriers because they have to deal with additional subscriber acquisition costs, which impact operating margins. Therefore, churn rate increases can be a cause for concern for investors.

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