The country’s two largest CDMA carriers posted strong second-quarter results last week, with customer growth surging past last year’s results and customer churn rates falling to unexpected lows. The results followed similarly robust second-quarter customer growth announcements last month from nationwide rivals Cingular Wireless L.L.C., AT&T Wireless Services Inc. and Nextel Communications Inc. as well as regional providers Alltel Corp. and U.S. Cellular Corp., which analysts noted so far have produced the highest customer addition quarter in years.
Verizon Wireless posted the strongest results of any carrier so far this quarter, reporting nearly 1.3 million subscriber additions and further distancing itself from its nationwide competitors as the largest carrier in the country. The results were nearly double the 723,000 customers Verizon Wireless added during the second quarter last year and well ahead of the 833,000 subscribers the company added during the first three months of this year.
Verizon Wireless ended the quarter with 34.5 million subscribers, which is well ahead of second-largest carrier Cingular, which ended the quarter with 22.6 million subscribers, and third-largest AT&T Wireless, which reported 21.5 million customers. Verizon Wireless added that it expects to add more than 4 million customers for the full year.
Bolstering Verizon Wireless’ strong customer growth results was a reported 1.7-percent customer churn rate during the second quarter and an even lower 1.4-percent postpaid churn result. Analysts noted the results, which were down from the 2.3 percent the carrier reported last year, showed Verizon Wireless’ focus on customer retention is working and is especially important considering the company’s large customer base.
“The low churn results really paid off for Verizon’s net additions,” said Jeffrey Hines, president of N. Moore Capital Ltd.
Verizon Wireless also reported 300 million billed text messages per month during the second quarter and 1.4 billion total text messages for the first half of the year, as well as 2.5 million downloads from its Get It Now wireless data offering per month during the second quarter.
While Verizon Wireless was stampeding its way through the second quarter, fellow CDMA carrier Sprint PCS posted better-than-expected customer growth backed by a dramatic decrease in customer churn that spiked last year following adjustments to its Clear Pay service offering.
Sprint PCS reported 360,000 direct customer additions during the quarter, which was ahead of the 308,000 customers the carrier added last year and ahead of analyst forecasts. The company also reported 177,000 wholesale customer additions and 80,000 net additions from its 10 affiliates.
Analysts noted that Sprint PCS’ lower-than-expected 2.4-percent customer churn, which was a substantial improvement from the 2.9-percent churn the carrier reported last year and 3.1 percent posted during the first quarter of this year, helped the carrier’s net additions make up for lower-than-expected gross subscriber additions. Sprint PCS attributed the gross addition shortfall to a supply shortfall of the Sanyo 8100 handset introduced during the quarter as part of its picture messaging service.
Sprint PCS also noted its Vision data service continued to show strong growth with net additions at 40 percent of gross customer additions and pushing total Vision penetration to 14 percent of the carrier’s customer base. Sprint PCS added that its wireless data service contributed nearly $2 to its $62 average revenue per user result, ahead of the $61 the carrier reported in ARPU during the second quarter of 2002.
While not of the same scale as either Verizon Wireless or Sprint PCS, Nextel Partners Inc. also posted robust second-quarter results, including 89,000 net customer additions, which while below the 90,500 subscribers the carrier added last year was ahead of analysts’ estimates and helped push Nextel Partners’ customer base above the 1 million subscriber mark during the quarter.
Following a slight increase in customer churn to 1.7 percent during the first quarter of this year, Nextel Partners also posted a return to its nearly trademark 1.6-percent customer churn rate during the second quarter (which the carrier has reported for 10 consecutive quarters dating back to mid-2000.)
N. Moore Capital’s Hines noted that with T-Mobile USA Inc. and a handful of regional operators still to report later this month, industry customer additions are running well ahead of last year’s levels and are matching levels not seen since the second quarter of 2001.
“The industry began making an effort about a year ago to focus on not just attracting but retaining its customers and it seems to be beginning to pay off,” Hines said.
Other analysts added that the strong customer growth results also were attained without carriers resorting to pricing wars or negative advertising campaigns.
“The carriers have reported strong results without having to take the gloves off in regards to pricing,” said Ned Zachar, telecommunications analyst at Thomas Weisel Partners. “They have also taken a more passive-aggressive approach to marketing that seems to be helping the industry.”
