Regional carriers continued to bleed customers during the third quarter as more competition and evolving networks drove up churn for a number of operators
Dobson Communications Corp., SunCom Wireless Holdings Inc. and Rural Cellular Corp. all posted significant customer losses during the quarter, echoing similar losses posted throughout the last several quarters. The carriers cited similar causes for the defections, including network integration and upgrades that have pushed their typically low customer churn closer to levels associated with prepaid plans.
Dobson, which reported preliminary results last month and released full results last week, said it lost 24,100 customers during the quarter and has lost 44,000 customers through the first nine months of the year. Most of the loss has come from customers not staying with the carrier-as evident from the sequential increase in postpaid customer churn from 2.25 percent during the second quarter to 2.82 percent in the third quarter-as gross customer additions have remained generally flat.
Analysts noted that while Dobson’s network upgrades from TDMA to GSM are helping the carrier bolster its long-term roaming and recurring revenue streams, quality issues are hurting the carrier in the short-term.
“As the GSM base grows, Dobson is transitioning spectrum (and capacity) from TDMA to GSM operations, making the TDMA offering less robust,” noted Bear Stearns & Co. Inc. analyst Phil Cusick. “Some customers are seeing lower service quality, possibly making them even more reluctant to transition to GSM and sign a two-year contract.”
Rural Cellular is seeing a similar impact. The carrier lost 12,151 subscribers during the third quarter, which was quadruple the 1,900 customers it lost in third-quarter 2004. For the year, Rural Cellular has lost more than 25,000 customers and seen its customer churn balloon from 2.4 percent during the first quarter to 3 percent during the third quarter.
The carrier attributed much of the decline to issues encountered during the commercial introduction of its GSM networks in its Northeast, Northwest and South regions. Rural Cellular launched CDMA2000 1x-based services in the Midwest last year.
The story is slightly different for SunCom, which lost 45,556 customers during the third quarter but managed to finish integrating its network operations and customer base in the North Carolina and Puerto Rico markets it acquired from AT&T Wireless Services Inc. last year. SunCom’s challenging third quarter turned around a year in which it had added nearly 15,000 subscribers during the first two quarters following a loss of 20,000 customers during the fourth quarter of 2004.
SunCom, which previously operated as an AWS affiliate, noted the integration pushed churn from 3.2 percent during the second quarter to 3.8 percent in the third quarter. SunCom also noted that the transition required many customers to swap handsets, which pushed its cost per gross addition from $415 during the third quarter of 2004 to $453 this year.
“As we worked through the migration process, we made a significant investment in building long-term relationships with our customers, the effect of which had a short-term, negative impact on our financial results,” explained Michael Kalogris, chief executive officer of SunCom.
SunCom also sold 29,000 former AWS enterprise customers-those who had not migrated to SunCom’s network-to Cingular Wireless L.L.C. for $3.1 million. Analysts were expecting the sale, noting the enterprise customers would be interested in maintaining service with a nationwide operator.
Despite the customer challenges, all three operators have managed to grow revenues.
Dobson posted a 16-percent year-over-year jump in revenues boosted by a 29-percent increase in roaming revenues driven by its GSM network.
Rural Cellular reported similar revenue gains supported by a 41-percent surge in roaming revenues also bolstered by its network upgrades.
SunCom’s revenue growth was a more modest 1 percent as the carrier worked through customer integration issues and posted a 22-percent drop in roaming revenues due to new roaming agreements.
Boosted by strong gross customer additions, Leap Wireless International Inc. said it added more than 23,000 net subscribers during the third quarter, excluding the transfer of 19,000 customers related to the sale of its Michigan operations to Verizon Wireless. Leap lost 8,000 subscribers during the third quarter of 2004 and added nearly 3,000 subscribers during the second quarter of this year. Analysts were expecting the carrier to post around 40,000 net customer additions for the quarter.
Leap noted that gross customer additions surged from 200,000 customers during the third quarter of 2004 to 234,000 subscribers this year.
Customer churn also improved year-over-year from 4.5 percent during the third quarter of 2004 to 4.4 percent this year, though it increased sequentially from the 3.9-percent churn posted during the second quarter.
Regional Bell operating company Qwest Communications International Inc. said it added 4,000 customers during the third quarter to its mobile virtual network operator-based wireless service. The company noted the result was its second sequential quarterly gain in wireless customers following several quarters of losses as Qwest transitioned its customer base from its own network to Sprint Nextel Corp.’s CDMA network. Qwest said it ended the third quarter with 748,000 wireless customers.
In addition to its modest customer growth, Qwest reported that recurring revenues increased 9 percent year-over-year from $47 during the third quarter of 2004 to $51 this year. Qwest attributed the growth to its data and enhanced features and said approximately 40 percent of its gross customer additions during the quarter signed up for data services.
Despite the positive customer and recurring revenue results, Qwest noted that total wireless revenues slipped 2.3 percent to $129 million this year due to promotions and incentives. RCR