Wireless Churn Creams Laggards

Wireless investors got a sneak peek at the future this week, and the preview was anything but pretty for AT&T Wireless (AWE Quote) and Sprint PCS (PCS Quote).

The big wireless service providers saw their shares plunge Thursday after they posted soft growth and noted a rise in subscriber defections. Worse yet, observers expect those trends to intensify in the next month with the phase-in of so-called number portability.

That rule, which allows wireless subscribers to keep a cherished phone number even as they switch service providers, is expected to accelerate the industry's separation into winner and loser camps. The issue isn't just subscriber growth, though that remains paramount; also key is who has to spend to lure or retain customers, and how that affects the bottom line.

The sector's laggards in price and consumer satisfaction, such as AT&T Wireless and Sprint PCS, are expected to suffer. But others could capitalize on the new arrangement, observers say.

Customers will make their decisions "based on two criteria: quality and prices," says Yankee Group's Roger Entner, who sees the field of winners and losers dividing along those lines. "The perceived quality leader is Verizon Wireless and the value leader is T-Mobile." Other industry watchers say customer loyalty should be on Nextel's (NXTL Quote) side.

Uncertain Smile

Of course, the effect of wireless number portability is uncertain, and industry surveys and analyst opinions vary over just how many cell-phone users will actually take the plunge come Nov. 24 when the rules take effect. But one thing nearly all agree on is that AT&T Wireless and Sprint will not emerge as winners.

Fanning the anxiety this week are two surveys by industry consulting firms the Yankee Group and Management Network Group. Both outfits predict churn rates -- the percentage of customers lost over a given time period -- will increase by as much as half as customers who love their numbers but hate their services switch carriers.