I don't know about you, but my smartphone is practically attached at the hip. With the ability to stay connected with friends and family at the push of a button, to staying on top of your email from nearly anywhere within the United States, cell phones have truly transformed the way we communicate.
U.S. wireless saturation? Far from it!
But, apparently I'm not alone in this opinion. According to data aggregator Statista there were more than 355 million wireless subscribers in the U.S. as of the third quarter of 2014. The big four wireless companies – Verizon (NYSE:VZ), Sprint (NYSE:S), AT&T (NYSE:T), and T-Mobile (NASDAQ:TMUS) – comprised about 350 million of those combined wireless subscriptions.
Although these statistics might imply that the U.S. wireless market is nearing its saturation point, that couldn't be further from the truth. A growing population, burgeoning business needs, and growing data demand are giving wireless companies plenty of paths to grow their bottom-line.
Wireless research firm CTIA noted that U.S. mobile data usage doubled between 2012 and 2013 and is expected to increase by an additional 650% by 2018. A big component of that is mobile video which is expected to see traffic grow by 600% between 2013 and 2018. Yet, the coup de grace for the wireless industry could be its massive wireless connectivity potential between devices and appliances. CTIA predicts growth from 36 million wireless machine-to-machine devices in 2013 to 263 million by 2018.
Unfortunately for investors, understanding which wireless carrier is the best at maintaining customer loyalty isn't as cut-and-dried as reading subscription numbers. For that we'll need to turn to Brand Keys and its 19th annual Customer Loyalty Engagement Index to decipher which wireless provider truly is the best at engaging consumers and turning them into customers for life.
The importance of brand loyalty
Brand Keys' survey topped 36,000 people this year and covered more than 500 companies among 64 categories (including wireless providers). The formula behind Brand Keys' rankings includes examining how consumers perceive a brand, how that brand engages with consumers, and ultimately how consumers compare that brand to other brands within a category.
Brand loyalty is particularly important to the wireless industry for two key reasons. First, loyal customers are invaluable to wireless brands' marketing efforts. It's no secret that wireless providers have to spend a small fortune advertising their wireless plans because the field – while only four major players deep – is hypercompetitive. However, marketing itself won't necessarily net wireless providers loyal subscribers. Instead, loyal customers who are satisfied with their wireless plan are likely to tell their friends and/or family about their experience. This word-of-mouth advertising is free to wireless providers and it packs a far better punch than any advertising it could devise.
The other component here is that loyal customers are often more willing to accept price increases and stick with a wireless provider long after a promotional period expires (should there be one when a customer signs up). In other words, loyal customers tend to be the cash cows of the wireless industry.
Two wireless loyalty laggards
Now that you have a better idea of why brand loyalty is critical in the wireless industry, let's take a look at two wireless providers that simply missed the mark.
Whether this comes as a shock or not, Sprint once again ranks the worst among the four major wireless providers in terms of brand loyalty. If there is any consolation here, Sprint did rank higher than U.S. Cellular and MetroPCS in Brand Keys' overall rankings. Yay, right?
Sprint's dead last ranking among the big four wireless companies is easily confirmed by Consumer Reports' cell phone service survey released in Nov. 2014. As the survey showed, Sprint came in last when it came to the value of its plans and its data service, while ranking in the middle of the pack for voice and text. Sprint has made strides with its network since the majority of the company was acquired by Japan's SoftBank and it has also engaged in an aggressive promotional marketing campaign where it offers (with some restrictions) to halve the wireless plan price of subscribers of AT&T or Verizon who switch networks to Sprint. However, it remains to be seen if these investments and marketing tactics will translate into improved market share and happier customers.
Ranking ahead of Sprint, but still only taking the No. 3 spot in Brand Keys' loyalty rankings, was T-Mobile. The aforementioned Consumer Reports survey does point to improved perceptions of T-Mobile in 2014 compared to 2013 which is likely the result of its "uncarrier" marketing strategy, which seeks to lure in contract-leery consumers who don't want to be locked into anything over the long-term. The move has certainly helped make T-Mobile appear more in-touch with consumers' wants and needs. Unfortunately, T-Mobile's value is where its greatness ends. It received poor scores in voice, text, and data network. With a smaller subscriber base, the company simply has trouble competing for customers with the likes of AT&T and Verizon.
Between AT&T and Verizon, the wireless loyalty leader is ...
Once again we're left with the kingpins of the wireless industry – AT&T and Verizon – to fight for the title of brand loyalty leader. And once more, AT&T took the crown.
To be fair, Verizon is making a lot of smart moves and it's clearly doing well in certain categories with consumers. In Computer World's 2014 mobile data survey, released in Jan. 2015, Verizon topped AT&T (just barely) in data connection availability and reliability (largely a function of its lead in the U.S. on AT&T in terms of 4G LTE-capable cities), while in RootMetrics' Second Half 2014 U.S. Mobile Network Performance Review Verizon edged out AT&T for best network reliability.
But, Verizon also came up short of its foe in a number of key categories. In Computer World's survey AT&T was superior to Verizon in network speed, value and phone selection, and also had far fewer respondents note their intent to shop around for a new carrier in the coming year. In J.D. Power's Customer Care survey AT&T managed to come in second behind T-Mobile among wireless contract providers, but that was good enough to beat Verizon. In sum, AT&T may not be putting Verizon in the rearview mirror, but its far more consistent across multiple categories than Verizon, and consumers appear to appreciate that.
And of course, AT&T is delivering for investors. With its full-year release in January, AT&T announced a record-low postpaid consumer churn rate (i.e., the percentage of subscribers leaving for another carrier), as well as record wireless service margins. The two would seem to go hand-in-hand in that a happy customer base is more willing to spend on higher margin data plans.
Although brand loyalty alone isn't enough to justify the basis for an investment, AT&T's leading consumer loyalty as a wireless provider certainly provides a jumping off point for investors to consider an investment in the company. That is, of course, if its huge subscriber base and nearly 6% dividend yield didn't already act as enough of a lure.
Sean Williams has no material interest in any companies mentioned in this article. He is the epitome of a loyal wireless customer, having been with AT&T wireless for 17 years and counting. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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