If there’s one thing that stood out about the fourth quarter in terms of industry metrics, it was the high level of competition by way of promotions and other activities among the biggest carriers in the U.S.
The fourth quarter tends to be seasonally busy, but the last months of 2019 appeared to bring more activity than usual. Time after time in quarterly conference calls, executives at the big four wireless carriers pointed to the “elevated competitive activity” across the industry. Just last week, U.S. Cellular CFO Doug Chambers noted that U.S. Cellular’s churn for the fourth quarter of 1.11% was higher than the year prior, “driven primarily by aggressive industry-wide competition.”
The trend was clear even before all the numbers were in. T-Mobile kicked things off in January when it pre-announced some of its fourth-quarter results. “The hallmark of this quarter was a more competitive environment with more switching going on,” said T-Mobile EVP and CFO Braxton Carter during an investor event, explaining a 5% increase in T-Mobile’s gross additions.
When there’s a higher switching pool, i.e., churn going up across the board, it’s much more cost-effective for T-Mobile to grow and scale the business, he said. “Remember, we’re the challenger. It’s easy math. The more switching, the more efficiently and effectively we can grow, and this was a wonderful quarter from our standpoint,” he added.
T-Mobile COO Mike Sievert, who takes the CEO role this spring, underscored those remarks when the “un-carrier” reported final results in a conference call earlier this month, saying T-Mobile’s model flexes for more competitive periods rather than less competitive. Outgoing CEO John Legere said T-Mobile is the net share taker, and “we know how to get those adds when we need them, and those adds can get more efficient as well when there’s more jump balls.”
The executives pointed the finger squarely at Verizon for aggressively ramping up activity in the latter part of the year, suggesting its promotions and perhaps retention strategies were causing a lot of upheaval. Verizon last year launched four new price plans for its unlimited packages starting from $35.
Whatever it did, Verizon’s churn rate of 0.86% for the fourth quarter indicated it was successful. “I think that’s why Verizon’s churn is still pretty good because Verizon is fighting back,” said William Ho, founder and principal analyst at 556 Ventures, who noted that Verizon has the highest postpaid subscriber base, and that it’s been a target of T-Mobile’s in particular for some time now.
Higher switching pool spells opportunity
T-Mobile boasted that its churn rate, at 1.01% for the quarter, was better than AT&T’s 1.07% churn for postpaid phones. Sprint’s churn rate of a whopping 2.06% implied that a lot of the switchers were jumping off Sprint’s ship, not exactly a surprise to anyone in the industry.
In his remarks last month, T-Mobile’s Carter acknowledged that it sounded counter-intuitive when he said he wished for higher churn. Churn is usually the kind of thing operators want to see go down in their own metrics. But he said T-Mobile is “really excited” about a higher switching pool and the outlook for that in the next couple years.
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The argument for merging Sprint with T-Mobile was to build a stronger third player. T-Mobile’s opportunity to grow is a function of churn, and if there’s churn of about 1% occurring every month in the industry, T-Mobile is going to jump on it, Sievert explained at the same investor event.
“We’ve been so clear for so long that this combination [with Sprint] is about enabling a higher level of competition,” Sievert said. “It’s about more competitive intensity,” and there’s no reason to wait. When carriers are building very high-capacity network, that means in a sense, “the cavalry’s coming and if the cavalry’s coming, you execute now… You don’t wait around,” but rather take market share while you can.