The market for wireless services in the United States is one of the most lucrative -- and competitive -- in the world. After dozens of companies initially exploded on the scene in the great wireless gold rush of the 1990s, mergers, acquisitions, and financial implosions have whittled the list of service providers down to four major players:
• AT&T (NYSE: T)
• Verizon Wireless, which is a joint venture between Vodafone (NYSE: VOD) and Verizon Communications (NYSE: VZ)
• Sprint Nextel (NYSE: S)
• T-Mobile USA, a subsidiary of Deutsche Telekom (NYSE: DT)
These four companies rake in the lion's share of new subscribers each quarter. They also put the most money behind advertising to capture them. With the wireless penetration rate in the U.S. now surpassing 80%, competition for new customers is intense, and carriers are putting more focus on retaining customers. For this reason, customer churn is a very important metric that investors should scrutinize to gain insight into the health of a wireless company's operations.
Churn, baby, churn
When looking at the churn rates, keep in mind that what might appear to be a small difference between two rates actually shakes out to huge numbers: A 0.1% difference means millions of dollars of lost revenue. Also, keep in mind that these churn rates are presented in monthly terms.
Here's how the four largest operators stack up:
|
Monthly Churn Rates
|
03/06
|
06/06
|
09/06
|
12/06
|
03/07
|
|
AT&T
|
1.9%
|
1.7%
|
1.8%
|
1.8%
|
1.7%
|
|
Verizon Wireless
|
1.2%
|
1.1%
|
1.2%
|
1.1%
|
1.1%
|
|
Sprint Nextel
|
2.3%
|
2.4%
|
2.8%
|
2.7%
|
2.7%
|
|
T-Mobile
|
2.7%
|
2.9%
|
3%
|
2.9%
|
2.6%
|
Source: Company reports (Note: Verizon and AT&T report total churn, while Sprint Nextel and T-Mobile USA is comprised of direct prepaid and postpaid churn).
The Foolish takeaway
Since carriers can count lost accounts and customer turnover differently, the differences between the companies aren't as important as the trend within each company over time. For instance, Verizon Wireless has done a great job in maintaining an industry-low churn rate. AT&T has done a good job of reducing churn, while Sprint Nextel and T-Mobile USA have both struggled with their churn. T-Mobile showed a marked improvement in churn in the latest quarter, but we'll have to see if that's a new trend that breaks from the past increases.
Churn rates of the various service providers have a lot to do with the makeup of their customer bases, which is why, in the next "Wireless Smackdown," we'll take a look at how each is doing with customer additions.
Until next time, dial up more Foolishness with:
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Fool contributor Dave Mock has never had the pleasure of churning butter. He owns no shares of companies mentioned here. Dave is the author of
The Qualcomm Equation. The Fool's disclosure policy keeps customers so happy, they always come back for more.
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