Over the last few years, T-Mobile (NASDAQ:TMUS) has pursued bringing its wireless service to the same level as Verizon (NYSE:VZ), the market leader in most aspects. It expanded its wireless coverage, it built out its retail network, and it pushed the entire industry to offer better service.
And the results are starting to show up for T-Mobile.
It's not just about subscriber additions; T-Mobile has been leading the industry for years in that regard.
One big area where T-Mobile still lags Verizon and AT&T (NYSE:T), though, is its subscriber churn. That's a measurement of what percentage of its subscribers leave the service in a given period. Verizon has produced postpaid phone subscriber churn of less than 0.9% for 15 straight quarters. T-Mobile, by comparison, has never had a churn rate lower than 0.95% for a quarter.
Check out the latest T-Mobile earnings call transcript.
However, the gap is narrowing. T-Mobile's fourth-quarter churn rate fell 19 basis points to 0.99%. Verizon, meanwhile, saw its churn rate rise 5 basis points to 0.82%.
A declining churn rate is essential to T-Mobile's continued growth. As its own subscriber base gets bigger, customer retention plays a bigger role in overall net additions compared to gross additions. T-Mobile's goal should be to close the gap between itself and Verizon entirely.
Keeping churn low with a bundle
One of T-Mobile's best strategic moves over the past year or so was its decision to include a Netflix subscription as part of its family plans. That set in motion a series of moves by competitors to bundle various subscription services. Verizon just got on board at the start of the year by bundling Apple Music with its high-end unlimited plans.
Bundling is essential to AT&T's strategy. It offers discounts to customers who take both wireless service and one of its TV services. It also offers its high-end unlimited wireless subscribers their choice of an add-on premium subscription service, such as HBO Now.
Both AT&T and T-Mobile have found that bundling, to various degrees, positively affects subscriber retention. On AT&T's second-quarter earnings call, CEO of AT&T Communications John Donovan said:
A lot of skepticism about the value of bundling up versus it being just a price discount. I've got to tell you, you start to look at the economics of churn reduction and you start to learn how these currencies pass back and forth.
T-Mobile has also commented that the Netflix partnership has had a measurable impact on subscriber churn.
Focusing on the customer
One of T-Mobile's Un-Carrier initiatives last year was to improve its customer service with a program it calls Team of Experts. The idea is to give customers better and more personalized customer support by making smaller support teams dedicated to a smaller group of customers.
The move has enabled T-Mobile to stay ahead of Verizon and AT&T in customer satisfaction, according to separate polls by Harris X and YouGov. It's worth noting that customer satisfaction increased across the board for wireless carriers in 2018. Verizon saw a significant uptick mid-year when it started offering more flexible plan options and a six-month trial of Apple Music to new customers.
T-Mobile has been a customer-focused company since John Legere took over in 2013 and started making big changes to the business. There's no reason to expect that to change in 2019. Happy customers are more likely to stick around.
Growing its share of the enterprise market
One big focus for T-Mobile over the last couple of years has been winning more business and enterprise customers. An enterprise contract can bring hundreds or thousands of new subscribers, and they generally have lower churn rates than retail customers. Migrating 100 phones to a new service takes a lot more work than transferring a couple of phone numbers in a household.
The business and enterprise market is still dominated by Verizon and AT&T. T-Mobile is only starting to compete now that it's built out its network coverage to be on par with the bigger competitors. Management says its share of that market is in the single-digits, but it's growing rapidly.
Combining growth in the low-churn enterprise market with strong retail subscriber satisfaction and a superb bundling offer, T-Mobile has managed to narrow the gap in its churn rate between itself and its larger competitors. If the trend continues, the gap could practically disappear as soon as this year, and that would be a major milestone for T-Mobile.