During the last quarter of 2014, Verizon Wireless managed to acquire 2.07 million new subscribers, as well as updated many of its customers who own old feature phones to new 4G handsets, and even connected 1.4 million new tablet devices to its fold.
It appears that all is well and good for the Big Red, but actually not quite perfect. With an overall churn rate of 1.39 percent, the carrier's customer turnover rate is the highest it has been in more than two years. The churn rate is computed as the percentage of overall subscribers who leave a certain carrier in a quarter. Carriers who offer a lot of prepaid plans usually have high churn rates. But in the case of Verizon Wireless, it always had a minimum customer turnover rate because it focuses on postpaid plans and family plans.
But in the last quarter, it seems that the Big Red is finally starting to get affected by the aggressive efforts of some of its competitors, namely Sprint and T-Mobile. Consider this -- Verizon's churn rate for postpaid customers usually does not go beyond 1 percent. But during the fourth quarter of 2014, the carrier's postpaid churn rate increased to 1.14 percent. That is equivalent to around 1.16 million subscribers who jumped ship and switched to other carriers.
Now, a high churn rate does not necessarily always mean that a carrier's customer base is decreasing. It just means that the carrier may not be doing enough to retain its current customers. It looks like this is what happened to Verizon Wireless during the last quarter. And considering the always tough competition, with other carriers constantly offering other plans with far cheaper rates, it is no surprise that many of the Big Red's customers are choosing to switch.
Moreover, Verizon's high churn rate seems to be correlated with the increase in new customers for its competitors. Indeed, T-Mobile revealed earlier this month that they managed 2.1 million net new customers for the final quarter of 2014. As for Sprint, it got 1 million net new subscribers in the same period.
While there is no need yet to hit the panic button, Verizon Wireless should keep an eye on its increasing churn rate. Even though it ended 2014 with a total of 108 million prepaid and postpaid customers and generated profits of $2.42 per share, the carrier sustained some losses of $2.15 billion during the fourth quarter. If the Big Red wants to keep its lead among the major wireless carriers in the United States, then it is imperative it gets its bearings back in 2015.
