Why Wireless Customers Don’t Seem to Be Hopping for iPhone 7
The annual release of a new iPhone has often fueled customer defections in the wireless industry as subscribers switch carriers to get a better deal on the latest Apple device. And even with the rate of defections (also called the churn rate) at record lows earlier this year, analysts still expected the arrival of the iPhone 7 would once again stir the pot.
On Tuesday, Sprint gave an early peek at its results for last quarter, the first reading from any of the four major carriers since the iPhone 7 hit the market. And Sprint’s preliminary churn rate for the three months ended September 30 remained relatively low at 1.37% for regular monthly (or postpaid) phone customers. The fourth-ranked wireless carrier did gain more postpaid customers than Wall Street expected, adding a net 347,000 phone subscribers instead of the 280,000 analysts had expected. Shares of Sprint, already up 50% since its last earnings report, gained just 1% in morning trading on Tuesday.
The lower-than-expected churn rate at Sprint (S) accounted for a good portion of the higher-than-expected net customer additions, noted New Street Research analyst Jonathan Chaplin. With fewer current customers leaving than Wall Street had modeled, Sprint didn’t have to steal away as many new customers from competitors AT&T, Verizon and T-Mobile (TMUS).
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Still, new iPhones were only delivered to customers in the last two weeks of the quarter, MoffettNathanson analyst Craig Moffett noted. “Remember (again) that these results are almost entirely during the calm-before-the-storm period prior to the release of the iPhone 7,” he wrote.
So has the allure of Apple’s (AAPL) iPhone faded? Are the iPhone 6 and 6S “good enough” for most customers? That could be part of the explanation, but several other dynamics may also be in play.
For one, all four carriers offered almost identical generous promotions on the iPhone 7. For several weeks after the iPhone 7 was on sale, all four carriers said they would give new or existing customers a free new phone with trade in of an iPhone 6 or 6S. T-Mobile was first with the free offer, quickly matched by Sprint. But unlike prior years, when AT&T (T) and Verizon (VZ) were less generous, the two largest carriers also matched the free offer within days. So customers didn’t have to switch carriers to take advantage of the best deal.
And the offer also all required customers who got a free iPhone 7 to stay with their carrier for the next two years or face the obligation to pay back a prorated portion of the freebie. That could keep churn low for the foreseeable future.
A second change from the past is the disappearance of most phone subsidies. Customers who could not take advantage of the free with trade-in offer faced paying the full price of $650 or more to get a new iPhone 7, though they could choose to pay via a 12- or 24-month installment plan. In the past, carriers covered most of the cost as a subsidy and customers paid only $199 to get a new iPhone.
The change has prompted customers to hold onto to their phones for longer, reducing upgrade rates. So the desire to save money may have trumped the appeal of the iPhone 7, which largely has the same exterior design as the prior two models.
Without data from AT&T, Verizon, and T-Mobile, it’s too soon to conclude that the iPhone 7 failed to stimulate as much carrier switching this time around. But at least the early signs from Sprint appear to indicate a changed wireless market.