Wireless Churn Creams Laggards

The dust will start to kick up in coming quarters, with monthly churn rates jumping to 3.5% over the 2.5% industry norm, says Entner. He says that when the dust settles, two outfits -- the Verizon Wireless joint venture of Verizon (VZ Quote) and Vodafone (VOD Quote), and the T-Mobile unit of Deutsche Telekom (DT Quote) -- will come in ahead of the pack as consumers opt for perceived quality and lower prices.

In a separate survey by Management Network Group, some 29% of users say they will change services because they can keep their numbers. Over the vast expanse of U.S. wireless subscribers, that could mean 42 million switches in the coming year.

Perhaps more troubling for the big business service players -- again, think AT&T Wireless -- is a recent survey by the same group that says a quarter of all companies plan to switch providers in the coming year.

Though some question the sample size of the surveys and whether they merely gauge the sentiment of users rather than their actual plans to change services, many industry observers say they expect some degree of turbulence over the next several months.

And in some cases, the fun has already begun.

Both Sprint and AT&T Wireless said this week that their churn jumped to 2.7% last quarter, a disturbing sequential increase that surprised investors who were looking for more stable trends. Their shares dropped 17% and 11% Thursday.

As a function of their rather middling efforts to date, AT&T and Sprint are in a bit of a sour spot, says Bear Stearns analyst Phil Cusick, in a note Thursday. "AT&T Wireless and Sprint PCS are neither high quality nor lowest priced, and seem to have trouble attracting customers," Cusick writes.

Cost Counting

For wireless investors, the concern isn't so much over which carrier grabs the most subscribers, but more over the costs associated with the higher turnover rates. Telcos will have to beef up spending on customer service, retention offers, phone giveaways and in some cases cash buyouts to win customers by paying off the penalties of their broken contracts.