AT&T Keeps Customer Churn Rate Low Despite Customer Complaints

AT&T (NYES:T), which primarily competes with major wireless service providers like Verizon (NYSE:VZ) and Sprint (NYSE:S) in wireless business, reported improving churn rates in its recent quarterly earnings.  Despite frequent complaints regarding its network, customers are still willing to hold on to the network service provider, mainly attributable to its iPhone exclusivity and vast coverage through group plans.

Below we discuss where AT&T stands in terms of network performance and customer satisfaction, and why its customer churn rates are low despite customer perceptions of poor network performance.

Low AT&T Customer Satisfaction According to Recent Research

ChangeWave, a market research network, surveyed more than 4,000 mobile consumers in March 2010 on certain metrics like customer satisfaction and drop call rate.  The survey results showed that AT&T had low customer satisfaction levels (about 23%) compared to competitors Verizon, Sprint and T-Mobile which had levels of 49%, 35% and 23%, respectively.

Verizon also ranked the best in terms of number of dropped calls experienced by its customers. Verizon’s drop call rate was only 1.5% over a three-month period, compared to Sprint’s 2.2% and AT&T’s 4.5%.

AT&T Maintains Low Customer Churn Rate Despite Perceived Customer Dissatisfaction

Despite low customer satisfaction, AT&T’s churn rates (the percentage of customers that leave AT&T) are still low and improving.  According to ChangeWave’s survey, only 8% of AT&T customers said that they plan to switch their service provider, compared to 7% for Verizon.  The low churn rates for AT&T can be attributed mainly to two factors:

1) AT&T’s iPhone exclusivity

With growing popularity of the iPhone in the US, AT&T is reaping benefits and gaining market share. Ever since the iPhone’s launch, AT&T has gained close to 3% market share. Below you can see how AT&T’s stock depends on its wireless market share.

As AT&T has exclusive rights to sell the iPhone, customers of the iPhone cannot switch to a different a service provider. The iPhone customer base is growing and currently accounts for an estimated 15% of AT&T’s wireless subscribers. The iPhone has forced customers to be with AT&T, despite their dissatisfaction with the company’s network.

2) Majority of AT&T’s customers are under family plans or corporate plans

About 70% of AT&T’s subscribers are on family plans, making it difficult and unlikely for them to transition to a different service provider. In order to transit, these customers will have to transfer multiple devices to a different network, which can be a cumbersome process.  Moreover, about 40% of AT&T’s subscribers are part of its corporate plan, and employers are unlikely to switch company-owned devices for a new carrier.

AT&T can potentially use its group plans, along with time-bound contracts, to effectively mitigate the threat of customer transition to a different provider upon the loss of iPhone exclusivity.

See the full analysis for the $38 Trefis Price estimate for AT&T’s stock here.