During T-Mobile's (TMUS -0.23%) fourth-quarter earnings call earlier this month, CEO Mike Sievert said the company's branded postpaid phone churn was the lowest in the industry. Both Verizon (VZ -1.16%) and AT&T (T -1.66%) saw just 0.76% of their postpaid phone consumer customers switch providers in the fourth quarter.
Sievert didn't break out the specific figure for T-Mobile-branded postpaid consumer phone churn, but total churn across its subscriber base (Sprint and T-Mobile) came in at 1.03%. "T-Mobile went from worst to first on churn with our winning formula," he said. "And here's the point. We know how to apply that same formula to our much higher churning Sprint-branded customers."
Moving Sprint customers to T-Mobile
T-Mobile is only in the early stages of transitioning legacy Sprint customers into T-Mobile customers. There are a lot of technical hurdles to overcome, and then there are some things that it will simply take time to roll out to the 26 million wireless customers it gained via the merger.
The biggest technical challenge is transitioning customers from the Sprint network to the T-Mobile network. Not only will this give them access to a better network with faster speeds and more coverage, it'll allow T-Mobile to decommission Sprint cell sites and free up that spectrum for use in its 5G network. T-Mobile gained experience doing this by decommissioning the MetroPCS network last decade.
So far, T-Mobile has only moved 4 million Sprint customers to T-Mobile's network. As T-Mobile works through the rest of them, selling new network-compatible devices to those customers, it should see continuous improvements in churn.
Lower churn among customers with new devices and on the T-Mobile network should help offset the costs of any device promotions T-Mobile runs to transition customers. More importantly, the synergies from decommissioning the legacy Sprint cell sites will more than make up for the costs of transitioning customers. That said, the biggest cost savings can't happen until customers are fully transitioned to a single network.
In the meantime, there are other factors that contribute to lower churn at T-Mobile that haven't yet rolled out to the Sprint customer base, such as customer service initiatives like "Team of Experts." Management says improved customer service has played a key role in reducing churn at T-Mobile, and investors can expect the same reaction to it from the Sprint subscriber base.
Making the Sprint customer experience as close to the T-Mobile customer experience as possible before Sprint subscribers transition to the network should move the churn rate closer to T-Mobile's over time. "It's not going to happen overnight, but we're really going to get to work," Sievert said.
Sievert doesn't think AT&T or Verizon stand a chance
One reason Sievert thinks he and his team can considerably reduce churn among Sprint users is because he doesn't think AT&T and Verizon are really going after those customers. Marketing chief Matt Staneff pointed out that in 2020's fourth quarter, AT&T's and Verizon's combined net subscriber additions were about equal to what they were a year prior. AT&T added more this year with significant promotions, while Verizon added fewer, but kept its most profitable customers.
Sievert sees this as signaling an opportunity for T-Mobile, noting it was the only carrier to both boost its customer growth and its profitability. "We're about to take all their customers," he boasted. He believes T-Mobile has the resources to "offer customers the best value and the best network," and he notes that the biggest competitive edge held by both Verizon and AT&T is consumers' perceptions about their networks' superiority.
T-Mobile is well ahead of the other telecom companies on building out its 5G network. What's more, it has the spectrum licenses necessary to get even further ahead in 2021, while AT&T and Verizon will have to wait to clear the new C-Band spectrum they acquired in the recent FCC auction.
Transitioning more Sprint customers to T-Mobile's 5G network, educating them on the benefits of 5G, spreading the word about how T-Mobile's network compares to AT&T's and Verizon's, and rolling out additional T-Mobile customer initiatives to its Sprint subscribers will ensure T-Mobile keeps more of them. And that should also mean fewer net additions for Verizon and AT&T.