Verizon (NYSE:VZ) posted better than expected postpaid phone net additions in the fourth quarter. In fact, since introducing its unlimited data plan last February, Verizon has added nearly 1.2 million new phone subscribers.

Meanwhile, competitors like Sprint (NYSE:S) and AT&T (NYSE:T) are struggling to attract high-value postpaid phone customers. T-Mobile (NASDAQ:TMUS), of course, continues to take the lion's share of net additions with its customer-centric service plans.

But what makes Verizon's success stand out is that it's the only major competitor relying solely on the strength of its service to drive customer additions. Everyone else has resorted to some sort of bundling.

Three people looking at a smartphone.

Image source: Getty Images.

Bundling economics

AT&T started offering its Unlimited Plus plan subscribers free HBO back in April. It expanded that to all of its unlimited plans in September. It also offers up to $25 off a DirecTV subscription for unlimited plan subscribers.

AT&T is by far the biggest bundler of all the wireless carriers, but T-Mobile and Sprint have jumped on board as well. T-Mobile started offering free Netflix for subscribers in September, and Sprint began offering free Hulu a couple of months later.

The idea of bundling is simple. T-Mobile CFO Braxton Carter explained:

To the extent that you can bundle more in, the retention characteristics in a multi-bundle situation are very different versus a single-product situation. And we're certainly ... seeing lift coming out of this new type of promotion.

These bundles aren't about selling more services. Even AT&T's DirecTV offer becomes a major loss for the company. They're about keeping subscribers attached to the wireless service.

Postpaid phone subscriber churn rates at AT&T have hit record lows in 2017, and AT&T is looking to goose those numbers for 2018.

Likewise, T-Mobile is seeing its churn rates drop. Fourth-quarter churn fell 10 basis points to 1.18%.

Sprint, on the other hand is seeing a larger percentage of its customers leave, with churn rising 17 basis points through the first six months of the fiscal year. That may be due to the expiration of some customers' promotional pricing.

But even without any sort of bundle, Verizon is posting best-in-class postpaid phone churn rates. Last quarter, just 0.77% of Verizon postpaid phone subscribers left the carrier. That's its 11th consecutive quarter of postpaid phone churn less than 0.90%, and better than any records set by AT&T (0.79%), T-Mobile (1.1%), or Sprint (1.37%). And that's in a period with seasonally high churn. In fact, Verizon hasn't posted a higher churn rate in any quarter since introducing its unlimited plan.

Verizon's differentiating factors

Verizon doesn't need to bundle anything with its wireless service because it has a couple of major competitive advantages. First, it has a strong brand that customers associate with premium wireless service. Second, it has the network to back it up. While it initially took some hits as Verizon rolled out the unlimited plan, Verizon's network speeds are starting to trend back in the right direction.

Verizon's scale compared to Sprint and T-Mobile gives it significant cost advantages, and it's not preoccupied with a massive television business like AT&T. While Verizon does have a wireline business and a relatively small digital media business, Oath, the vast majority of its profits still come from wireless, and it's able to focus its energy on that cash machine.

As a result of its lower cost of service and its lower customer churn, Verizon is able to produce better margins than its competitors, producing lots of profits and cash for investors. Offering a free premium video streaming add-on is not only unnecessary for Verizon to keep attracting new customers and retain its existing ones, it would eat into those margins.

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