Consumers Choose, Churn From Mobile Service Providers for Very Different Reasons

U.S. mobile service providers tend to lose customers for different reasons, a new study by Consumer Intelligence Research Partners has found, and the reasons are congruent with each firm’s positioning in the market.

AT&T and Verizon tend to lose customers because of the cost of service. That would make sense, as Verizon has a reputation as the “most expensive” carrier. AT&T does not hold quite that position in the market, but might generally be seen to be more expensive than Sprint and T-Mobile US.

Over half of consumers who switched from Verizon or AT&T said cost was the primary reason, compared to less than 40 percent for other deserting customers of Sprint or T-Mobile US.

On the other hand, customers leave Sprint and T-Mobile US because of perceived problems with network quality. That also might make sense, given the broader network coverage of the Verizon and AT&T networks.

Almost 40 percent of Sprint and T-Mobile departing customers say “network quality” is the reason they switched.

But customer churn also is less an issue than often is believed, the survey indicates. “Mobile phone customers are very loyal to their carrier,” CIRP argues.

Almost 80 percent of customers stay with their current mobile phone carrier when they buy a new phone, far more than stay with their operating system or brand of phone.

That 20 percent churn rate, spread over a two-year period, implies a churn rate less than one percent a month, at least when phones are replaced.

Loyalty varies somewhat among customers, with AT&T and Verizon maintaining the most loyal customers, and Sprint and T-Mobile have somewhat lower loyalty rates, CIRP notes. That is congruent with churn rates, which are lower at AT&T and Verizon than at Sprint and T-Mobile US.

As a generic, consumers arguably switch carriers for many reasons. Lower price, high cost, network quality, plan structure, device exclusivity or perhaps customer service quality might drive a change of service provider. But the survey shows the concrete reasons vary by carrier.

As you might guess, consumers also choose new carriers for different reasons.

AT&T and Verizon tend to appeal to consumers based on network quality, even though consumers think they cost more.

Consumers think that T-Mobile provides a lower-cost service, at the expense of network quality.

Sprint draws customers based on plan features, such as friends and family pricing or unlimited data.

Consumers do not appear to switch carriers based on the quality of customer service received from their old carrier or anticipated from their new carrier.

Verizon Sells 3.7 Million Lines, 7.1 Revenue Generating Units to Frontier Communications

Verizon Communications will sell its fixed network business in California, Florida and Texas to Frontier Communications Corporation for $10.54 billion (approximately $9.9 billion in cash, plus $600 million in assumed debt) for the business and related assets in these states.

At the end of fourth-quarter 2014, these operations served approximately 3.7 million voice connections; approximately 2.2 million high-speed data customers, including approximately 1.6 million FiOS Internet customers; and approximately 1.2 million FiOS Video customers.

The transaction includes Verizon’s FiOS Internet and Video customers, switched and special access lines, as well as its high-speed Internet service and long-distance voice accounts in these three states.

The consumer and small business wireline operations that Verizon is retaining provide service in nine states and the District of Columbia and had approximately 16.1 million wireline voice connections; seven million high-speed data customers, including approximately 5.1 million FiOS Internet customers; and 4.5 million FiOS Video customers.

The states in Verizon’s contiguous consumer wireline footprint are Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Washington, D.C.

At the same time, Verizon is returning a significant amount of capital to its shareholders through a $5 billion accelerated share-repurchase program.

In a separate transaction, Verizon also has agreed to lease the rights to over 11,300 of its company-owned wireless towers to American Tower Corporation, which will also purchase approximately 165 Verizon towers, for a total upfront payment of approximately $5 billion.

American Tower will have exclusive rights to lease and operate over 11,300 Verizon cell towers.

The average term of the lease rights is about 28 years. As the leases expire, American Tower will have fixed-price purchase options to acquire these towers based on their anticipated fair market values at the end of the lease terms.

Verizon will sublease capacity on the towers from American Tower for a minimum of 10 years for $1,900 per month per site, with annual rent increases of two percent. Verizon will have customary renewal options that could potentially extend the full term of the sublease to 50 years.

Earlier, I had estimated that “if Verizon acquires $10 billion worth of assets from Verizon Communications, and the value of a subscriber is about $3000, that implies the purchase of about 3.3 million subscribers. At $3200 per subscriber, the deal implies the purchase of about 3.13 million subscribers.”

The price actually wound up being about $2835, for a mix of consumer and small business accounts.

I Now Can Buy a Gigabit High Speed Access Service, But Won't Do So: Here's Why

Gigabit high speed access is a good thing, most might agree. But actual consumer behavior--inclding mine--might be quite different than some expect, when gigabit and 100-Mbps services are available, and people really have to make choices with financial implications.

For years, the fastest speed I could buy was about 20 Mbps, in Denver, even if other neighborhoods had been upgraded to 40 Mbps. The retail offer wasn't quite so good, as the preferable prices could only be gotten when high speed access was bundled with a voice line, a product I have no use for.

That now has changed. I now can actually buy either gigabit access or 100 Mbps from CenturyLink.

CenturyLink in 2014 said it would bring gigabit high speed access to 16 cities across the United States.  Some have questioned how widespread the service footprint would be, or the pace of upgrades.

Quietly, it seems, CenturyLink has been upgrading networks, including mine. 

In Denver, 16 neighborhoods seem to have been upgraded. In addition to gigabit services, customers also can buy 100 Mbps services.

In my own neighborhood, a gigabit will cost $110 a month, guaranteed for a year. The 100-Mbps service costs $70 a month, with the price guaranteed for a year. The 40-Mbps service, which I was told in 2013 was not available in my neighborhood, costs $30 a month, guaranteed for a year. All those prices are for stand-alone service, with no phone service.

Both the price-value and other terms and conditions are as good as I have been offered at any time over the past decade.

Now here’s the “bad news.” Having just experienced a speed upgrade from Comcast to 105 Mbps, (with consistent speed over time, of 75 Mbps)…..wait for it….I cannot easily detect, as a “dumb end user,” the benefit.

Let me say that again: after an upgrade from typical speeds of 15 Mbps to 75 Mbps, I cannot really tell the difference.

I wish I could say something noticeable happened. It has not.

That is going to be an issue, eventually. Line speed really doesn’t directly improve end user experience as much as one might envision, at least when there are not contending users sharing the line.

Oddly enough, despite waiting so long for 100 Mbps, to say nothing of a gigabit, and being able to buy both services, I am choosing not to by a gigabit. I can. I just don’t think it will provide any incremental value over 105 Mbps.

Shocking, I realize. It is surprising. But so far, I cannot tell the difference between the old 15 Mbps and the new 105 Mbps. And for that reason, I will not be upgrading to a gig. I could, but why?

More Trouble for Linear TV?

Total live TV ratings were down 12.7 percent year over year across the networks of major media companies, according to Nomura Research

That is part of a pattern of declines in linear video consumption that might now be on the verge of accelerating, trends recently highlighted by 21st Century Fox, which cut its revenue forecasts for 2015 because of declining viewership.

Sprint Gains Subs, Loses Operating Income

Sprint posted strong account gains but lower operating income in its latest quarter, adding nearly a million net new accounts, while net operating income dropped two percent and postpaid churn grew slightly.

Those account gains represented net customer additions up 42 percent year-over-year, while postpaid gross additions (not net additions) were at the highest level in three years, Sprint said.

The strong points were the subscriber gains and a shift in the customer mix towards higher-quality. Those gains came at the cost of higher churn rates and a dip in income.

BT Nails Deal to Buy EE

BT Group, Deutsche Telekom and Orange have agreed to terms by which BT will buy EE for £12.5 billion ($18.98 billion) in cash and stock, a move that will put BT back into the consumer  mobile services business after a decade absence, and also merge the U.K.’s largest fixed network operator and the U.K.’s biggest mobile service provider.

As part of the deal, BT will gain 30 million accounts, including some 24.5 million consumer mobile accounts and a Long Term Evolution fourth generation network that covers about 75 percent of potential U.K. customers.

The deal has to be approved by shareholders and regulators, but is part of several trends. European service providers now believe they need more scale to compete, driving mergers and acquisitions.

Also, because of the difficulty of growing in saturated markets, tier one service providers are blending mobile and fixed network services, moving towards quadruple play services (video entertainment, voice, high speed access, mobile).

Verizon Sale of Fixed Assets Could Boost Mobile Revenue to Nearly 75% of Total

If Verizon acquires $10 billion worth of assets from Verizon Communications, and the value of a subscriber is about $3000, that implies the purchase of about 3.3 million subscribers. At $3200 per subscriber, the deal implies the purchase of about 3.13 million subscribers.

Precisely how many fixed network subscribers Verizon presently has is a bit of an estimate, since “revenue generating units” tends to be the new metric, in a triple-play market.

But assume total high speed access subscribers are in the range of 9.2 million units, and that high speed access is about 50 percent of total fixed network active household accounts. That implies 18.4 million homes provided with at least one service.

So a sale of perhaps 3.13 million subscribers might reduce Verizon Communications fixed network accounts by about 17 percent.

In any event, Verizon soon will be generating even more of its revenue directly from mobile services, not fixed services. In the past, Verizon has generated 69 percent of revenue from its mobile segment. Selling 17 percent of its fixed network subscriber base will boost mobile even further. As a rough approximation, the sale of fixed assets might boost mobile segment revenues to about 74 percent of total.