There are few industries in America where there one or two companies absolutely dominate a sector. The U.S. wireless industry is one of them.
Although you can boil down basically all wireless customers to four brands – Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile, and Sprint -- it's Verizon and AT&T that control the lion's share of the wireless market.
The battle of two behemoths
According to Consumer Intelligence Research Partners, which issued its latest report on new subscribership two weeks ago, Verizon added 35% of all new subscribers in the first quarter compared to 28% for AT&T, 15% for T-Mobile, and just 9% for Sprint. This means nearly two-thirds of all new wireless subscribers in the U.S. went with Verizon or AT&T in Q1.
Should this really be a surprise? Probably not considering that Verizon, for instance, has more 4G LTE-capable cities than any other wireless company. At one point, Verizon had more next-generation, wireless-capable cities than its other three foes combined. This comparative advantage gave the company a noted edge in drawing new consumers. Similarly, AT&T has a rich and long history of being America's telecom provider with deep pockets, which it's relied on to drive new customer growth.
But, have you ever really wondered which company, Verizon or AT&T, is better at keeping customers loyal? We know both can bring in new customers with promotions, but the bread-and-butter portion of the business for these wireless telecom providers is in whether they can turn these new customers into loyal consumers for life.
The actual metrics behind brand loyalty can be difficult to measure, so we should be quite thankful that customer engagement and loyalty research specialist Brand Keys has done the hard work for us. In its latest report, Brand Keys spills the beans on which of the two wireless providers is top dog at keeping its customers loyal. However, before I reveal which company it was and how that could be great news for long-term shareholders, let's first take a closer look at why customer engagement and loyalty even matter in the wireless sector.
Why customer engagement and loyalty are important
Engaging a customer might not seem initially important on the surface for wireless phone service providers since promotional deals often bring a number of new customers in. However, even a fractional reduction in a wireless service providers' churn rate can equal millions or billions in extra cash flow over the course of the year. It takes billions to upgrade wireless infrastructure, and the truth of the matter is that the tech replacement cycle never actually ends, meaning capital expenditures are always on the minds of Verizon and AT&T.
This means a wireless service provider needs to be nimble with its pricing plans so it gives the greatest number of potential consumers an opportunity and reason to join. In addition, its retail outlets need to be widespread and its website easily accessible and usable if it's to succeed and retain customers. Nowadays, it's all about customer convenience, and the wireless provider that can emphasize convenience and present a positive public image is most likely to retain more customers and potentially derive more substantial margins from those customers.
Verizon or AT&T: Who has the most loyal customers?
Now that we have a better idea of how customer engagement and loyalty can have a sizable impact on a wireless service providers' cash flow and profits, let's find out which of these two telecom giants took the top honor in Brand Keys' survey.
Before I do the great reveal, do you have a guess which company you believe takes the top honor?
Got your answer?
Did you guess Verizon because of its 4G LTE advantage? If so, then you guessed incorrectly!
It's actually AT&T that took the top spot in customer engagement and loyalty in Brand Keys' survey for the fifth straight year.
"Why AT&T?" you're probably wondering? Robert Passikoff, founder and president of Brand Keys, attributed it to AT&T doing a "great job of listening to its customers and given them service and quality that meets their expectations." While completely true, this merely glazes over AT&T's strengths.
One of the primary draws of AT&T's network is speed. RootMetrics, a research firm that looks at network speed and reliability with some regularity, noted in September that AT&T's 4G LTE network was faster than Verizon's, and that it had greatly closed its previous network reliability gap behind Verizon. The overall rankings actually pulled AT&T above Verizon, which was a reversal from previous years. With Pew Research claiming that 61% of U.S. citizens now have a smartphone, AT&T's network speed advantage represents a key driver of customer loyalty.
Secondly, AT&T offers its consumers an array of plans and pricing options instead of squeezing them into a one-size-fits-all type package. In February, for instance, AT&T offered enticing discounts to family share plans that use 10 GB of data or more. This move came shortly after its offer to give off-contract consumers a discount if they switched from T-Mobile.
I can also speak from experience. As an AT&T customer, I found myself outside of the upgrade period when my iPhone 5 began to malfunction. Rather than pay an exorbitant replacement fee (even with insurance), I was able to take advantage of its Next upgrade plan, which got me into an iPhone 5s that same day. This convenience is one reason I've personally been an AT&T wireless customer since 1998 (it was Pacific Bell back then!).
A final point that can be made is that AT&T is more ingrained in American history and culture than Verizon. With a multigenerational history in its sails, a Brand Keys survey (links opens PDF) in July of last year found that AT&T tied for the 19th spot with a number of other companies for the most patriotic brands in the U.S. It's difficult for a telecom service provider to form an emotional attachment with consumers, but AT&T is clearly one of the few capable of this.
The end result is that while Verizon may hold the edge in total 4G LTE-capable cities, AT&T could hold the long-term advantage in average revenue per user since loyal customers signing up for high-margin data plans are the cornerstone to AT&T driving cash flow growth.