US mobile switching at a record low as consumers put off upgrades
The four largest US wireless carriers are signing up new mobile phone customers at their slowest rate in more than 15 years as consumers put off switching networks and upgrading their smartphones.
Verizon, AT&T, T-Mobile US and Sprint recruited 7.1m of the most lucrative “postpaid” mobile phone customers in the second quarter, according to figures prepared for the Financial Times by BTIG, the stockbroker.
Walt Piecyk, an analyst at BTIG, said postpaid phone additions on a gross measure — which strips out the impact of customer defections — had not been as weak since the broker started tracking them in 2000.
Postpaid phone customers pay for their mobile phone service on a recurring monthly basis, and generate the most profit for the networks.
“Activity in the market looks to be at a record low in terms of upgrades,” added Jonathan Chaplin, analyst at New Street Research. “It’s probably the lowest quarter ever — or at least since we had data.”
Analysts are divided on the reason for the phenomenon, with some blaming pent-up demand for the Apple iPhone 7 and a paucity of new smartphone features.
Others argue that efforts by the networks to stop customers leaving have started to bear fruit, resulting in a smaller pool of switchers for their rivals to pick off.
“There’s a tremendous amount of pent-up activity ahead of the iPhone 7 launch,” said Mr Chaplin. Activity has been so subdued, he said, because the iPhone 6S was not sufficiently different from previous models to convince customers to upgrade.
Customers tend to think about leaving their existing networks and switching to a rival only when they want a better phone, he said.
“A lot of people delayed a decision on upgrading their device,” Mr Chaplin added. “Even though people think the iPhone 7 will be a marginal improvement, they’re nursing beaten-up devices with cracked screens and just can’t wait to upgrade.”
Mike Sievert, chief operating officer at T-Mobile US, also ascribed the quiet quarter to “the absence of a major iconic phone launch”, pointing out that the Samsung Galaxy S7 hit the market in March.
However, Mr Piecyk said the networks were getting better at keeping their existing customers, meaning they do not have to fight so hard to win new ones.
He said the majority of customers were now on family or data-share plans, where the entire family is billed together for several lines.
“If your daughter isn’t coming up for an upgrade for six months, but you’re ready to switch now — well, it’s much harder to switch three or four lines,” he said.
Ironically, the trend could be positive for some carriers, because the process of losing customers and replacing them with new ones, known as “churn” in the industry, is time consuming, costly and damaging to profitability.
Mr Piecyk said it could make it harder for the smaller “challenger” networks — T-Mobile US and Sprint — to win new customers from their larger rivals, however.
Despite talk of pent-up demand for Apple’s iPhone 7, few Wall Street analysts are predicting a blockbuster launch for the handset.
Analysts at RBC Capital Markets said in a recent Apple note that customers are now holding on to their iPhones for several months longer than they used to.
“Replacement cycles have been getting extended rather consistently across the board, which in a flattish smartphone market could create revenue headwinds,” said Amit Daryanani, an RBC analyst.
Like many on Wall Street, Mr Daryanani predicts that the next iPhone will be “more evolutionary rather than revolutionary” compared with its predecessor, giving customers less incentive to upgrade.
Leaks from Apple’s supply chain suggest the handset will have a similar external design to the original iPhone 6, although the camera is expected to be significantly improved.