Verizon adds 2M new connections, but customer turnover increases

At a high level, Verizon had a very good fourth quarter for customer growth. It brought on board an additional 2.07 million subscriptions, upgraded many old feature phone customers to new 4G smartphones and connected 1.4 million new tablets to its network. But there were also definite signs that Verizon’s formidable wireless citadel is showing weaknesses as competition from T-Mobile and a recently rejuvenated Sprint increases.

[company]Verizon[/company]’s churn rate was the highest its been in more than two years, hitting 1.39 percent. A carrier’s churn is the percentage of overall customers who leave each quarter. Carriers with a lot of prepaid and transient customers tend have a lot higher churn, but Verizon, with its huge focus on postpaid contracts and family plans, historically tends to have the lowest turnover rate in the industry.

Of particular note, Verizon’s fabled postpaid churn rate — usually below 1 percent – jumped to 1.14 percent, which represents about 1.16 million of Verizon’s most valuable contract and family plan customers abandoning ship.

Just because a churn rate is high doesn’t mean a carrier is shrinking. It just has to court new customers more aggressively. That’s exactly what Verizon did in the fourth quarter, luring customers over from other carriers and encouraging existing customers to connect more gadgets. But CFO Fran Shammo said Verizon was only prepared to be so aggressive. Many of those departing customers left because prices were cheaper at the competition, and Verizon isn’t willing to engage in price war, preferring instead to let those customers go, Shammo said at Verizon’s earnings call.

It looks like [company]T-Mobile[/company] was the primary beneficiary. It hasn’t reported earnings yet, but earlier this month it released its subscriber numbers for 2014, showing 2.1 million net new subscribers in Q4. [company]Sprint[/company] also saw 1 million new net customer additions in the last quarter. [company]AT&T[/company] hasn’t yet released its subscriber numbers for the quarter.

Verizon by no means is crumbling under the pressure of T-Mobile’s Uncarrier strategy, but an increasing churn rate is definitely something to keep an eye on. The last time Verizon’s postpaid churn rate popped up above 1 percent was in Q1 of 2014, when Verizon actually lost phone customers for the first time in recent memory.

Verizon ended 2014 with 108 million total postpaid and prepaid connections. Though Verizon reported profits for the full year of $2.42 per share, it suffered a loss in fourth quarter of $2.15 billion, or 54 cents a share.

During the company’s earnings call, Shammo was also asked about the possible threat of Google entering the carrier biz by becoming a mobile virtual network operator. The CFO didn’t seem too worried. He pointed out MVNOs have been around for 15 years with posing any huge threat to Verizon. Shammo has a point. By becoming a virtual operator, [company]Google[/company] would need the carriers to give it wholesale access to their networks. It’s difficult to challenge an industry when you’re entirely dependent on that industry to survive.