The U.S. wireless industry is experiencing unprecedented levels of customer loyalty. Subscribers are holding onto their phones longer, which makes for fewer moments when they'll be most receptive to a pitch to switch carriers. Indeed, all four major wireless providers posted very low subscriber churn rates in the second quarter. In particular, T-Mobile's (NASDAQ: TMUS) 0.95% postpaid phone churn rate was a new record low for the company.
Here's how T-Mobile's result stacked up with those of of AT&T (NYSE: T), Sprint (NYSE: S), and Verizon (NYSE: VZ).
Q2 2018 Postpaid Phone Churn
Q2 2017 Postpaid Phone Churn
Table source: Author. Data source: T-Mobile, AT&T, Sprint, Verizon
While T-Mobile didn't produce numbers quite as good as AT&T or Verizon, it was the only major carrier to improve its churn rate year over year. Here's how T-Mobile did it, and what it means for investors.
Finding more loyal customers
Over the past year, T-Mobile has launched several initiatives designed to attract customers who are less likely to switch away from it. It introduced special pricing for couples aged 55 and older. It marketed heavily toward suburban families. And it promoted new plans for larger enterprises. All of those groups generally have longer customer durations than single urbanites.
T-Mobile is also starting to benefit from its massive retail expansion, much of which was concentrated in markets where its network coverage is relatively new. Those markets generally have less competition, which makes it easier for carriers to hold onto customers.
Image source: Getty Images
Generally speaking, T-Mobile has trimmed its churn rate closer to those of AT&T and Verizon by evolving its own customer base into one that looks more like those of the two market leaders. Both giants have much bigger presences in the enterprise market, and both were often the only wireless options for Americans in many rural areas. As T-Mobile continues to push into the markets historically dominated by those two, investors should expect to see its customer loyalty figures start to mimic theirs.
Don't forget about bundling
T-Mobile started bundling Netflix subscriptions with its T-Mobile One service plan last year. Management noted during the company's Q2 earnings call that customers who took the Netflix bundle were averaging more loyalty than those who didn't.
It's interesting to note, however, that Sprint copied that tactic by offering Hulu subscriptions with some of its data plans, but still saw a decline in overall loyalty. Meanwhile, AT&T has tried all sorts of video bundles for its customers, and hasn't seen a noticeable improvement in its churn rate either.
That may speak to the strength of Netflix's brand and product. T-Mobile's move to get in front of the trend enabled it to hitch its wagon to the right horse, and the move is paying off. As more customers are funneled into the Netflix bundle plan, it ought to continue paying dividends.
What it all means for investors
Lower churn means T-Mobile doesn't have to work as hard to grow its net customer additions. Considering the revenue per user is stable, service revenue growth is being driven entirely by adding new customers -- and finding those has gotten more and more difficult.
Low churn will enable T-Mobile to keep adding net new customers at a pace that completely dominates the industry. Management warned that it expects a seasonal uptick in churn in the second half of the year, but that trend ought to affect everyone.
And after posting porting ratios (how many customers joined a carrier versus how many left) greater than 2:1 for AT&T and Verizon, T-Mobile ought to still find its fair share of new customers to make up for any subscriber losses. In fact, T-Mobile's management will say higher industry churn benefits it, as it typically wins an outsize portion of switchers.
T-Mobile has done an excellent job at attracting more loyal customers, and at developing a product its existing customers love. Those two successes should be a great benefit to it over the long term.
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