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What is Verizon doing right to retain customer loyalty?

While Verizon Wireless reported fewer net subscriber adds in the second quarter compared to the first, the carrier reduced its churn rate as it increased its data revenue. Churn, baby, churn.

Although Verizon does not have the iPhone, a device that has helped AT&T close the gap between the top two carriers? churn rates, it does have its stable of Droid devices. The iPhone and Android-based smartphones appeal to a similar demographic and each leads to increased data consumption for its respective carrier.

?Verizon Wireless continued to have the best churn rates in the industry again in the second quarter, which is a key gauge of customer loyalty,? said Nancy Stark, spokeswoman at Verizon Wireless, Basking Ridge, NJ. ?Moreover, our churn levels are the lowest they have been in nearly two years.

?Verizon Wireless has the largest, most reliable voice and data network in the U.S., a key factor in customer loyalty,? she said. ?That is because, whether sophisticated or basic, devices and applications are only as good as the network they're on.

?This reputation for network quality, coupled with our wide choice of smartphones, operating systems and exclusive apps like NFL Mobile and Skype Mobile all contribute to earning our customers' loyalty.?

The Droid X has been a success so far, the only misstep being Verizon not having enough devices in stock to keep up with demand at launch.

Verizon Wireless' approach is to support a number of different operating systems and thereby offer a robust line-up of devices to provide choice to a broad base of new and existing customers.

That approach has been very successful, and within that approach Verizon's Droid family of devices have been a great success.

The carrier has had a steady stream of Droid devices since the first was introduced last Fall and its latest?the Droid X?like its predecessors, has been flying off the shelves. 

In the second quarter, Verizon Wireless claims that it added more retail postpaid customers than any carrier reporting their second-quarter results to date.

Healthy appetite for data
All of those Droid users, like their iPhone counterparts, send SMS and picture messages, surf the mobile Web, watch videos and download and use applications of all kinds?activities that marketers and content providers love.

However, that leads to increased data consumption, which can put a strain on carrier networks.

AT&T has gone to a tiered-pricing model for its data plans, appealing to mid-tier consumers and first-time smartphone users, while Verizon still has all-you-can-eat data plans, which marketers universally support.

Verizon claims that its data revenues have been growing steadily for the past several years.

Ms. Stark said that the explosive growth in data revenues is being driven by the increased use of innovative devices such as smartphones, 3G multimedia devices and netbooks, as well as new data applications on these devices.

In the second quarter, Verizon Wireless' data revenues grew 24 percent over the first quarter to $4.8 billion. That is almost 35 percent of the carrier's total revenue.

The question remains whether or not Verizon Wireless will see a similar impact on its network to the one AT&T has experienced, especially in areas with high concentrations of iPhone users such as the San Francisco Bay Area and the New York Tristate Area.

?Verizon Wireless is seeing good growth in data revenues,? said Phil Kendall, director of global wireless practice at Strategy Analytics, Milton Keynes, England. ?The growth rate?24 percent?and share of all service revenues?34 percent?are at very solid levels and this is clearly being aided by strong performance in 3G and smartphones.

?Both Verizon Wireless and AT&T are pulling away from the other carriers a little in this respect and the strong smartphone portfolios are making a very good contribution here,? he said.

?In fact, Verizon Wireless mentions that data is having a positive impact on margins in terms of the additional revenue flow, rather than the additional cost of supporting the increased traffic loads.?

Closer look at churn
Over the last five years, overall churn has actually crept up at Verizon, from 1.1-1.2 percent in 2006 to 1.3-1.4 percent in 2010, with AT&T closing in fast, from 1.8-1.9 percent in 2006 down to 1.3 percent in 2010, according to Strategy Analytics.

For the second quarter, retail postpaid churn was 0.94 percent at Verizon and 1.01 percent at AT&T.

?So Verizon Wireless no longer holds a significant advantage in respect to overall churn, although in the second quarter it maintained its lead in retail postpaid churn, which is strong at both carriers, as they are both performing very well in their core revenue-generating segments,? Mr. Kendall said.

Mr. Kendall said that despite losing its significant loyalty advantage over AT&T, Verizon is still performing much better than most other carriers in the market, where overall churn is generally over 3 percent.

Of late, Verizon churn rates have usually been somewhere between 1 and 1.4 percent per quarter, and its second-quarter churn rate?1.27 percent?was lower than the first quarter, which was 1.4 percent.

?There?s not huge change in this area, but Verizon is doing very well on customer loyalty,? said Phil Redman, Boston-based research vice president at Gartner.

That good news because their total net adds for the second quarter were 738,000 fewer than the first quarter, when they added 1.5 million positive net adds.

In fact, Verizon?s churn did not decrease enough to make up for the lower number of net adds, although the second quarter is traditionally a slow quarter for the wireless industry, according to Gartner.

?It?s hard to say what makes someone lose a customer?it could be customer service or network quality, but a big one is phones?desirable phones drive loyalty,? Mr. Redman said. ?I wonder if the iPhone is a big advantage for AT&T in that area.

?Verizon Wireless is going to higher-end smartphones with the Droid, and it has seen some good success there, but with other carriers getting Android phones, the differentiation not as great as it was in December of last year when the Droid program first launched,? he said.

?Droid is very high-end?it?s going after high-end subscribers.?

That has lead to the growth of data services, although Verizon is feeling pricing pressure due to AT&T dropping its data plan prices.

The price of 3G devices is also trending downwards.

Now that the iPhone 4 is out, just about anyone can afford a $99 iPhone 3G.

Verizon does not currently offer a device that is as appealing at that price point, although the original Motorola Droid may get there sooner rather than later.

?The iPhone is starting to push more to the middle of the market because it?s being subsidized and you can buy a $15 per month data plan, so AT&T is more competitive in that area,? Mr. Redman said.

?The next step is for Verizon, it needs to see how to appeal not just the high-end market with Droid but also target the mid-tier of the market that also wants smartphones,? he said.

?Carriers have to manage the high-end, middle-end and low-end at the same time to be successful, because there are fewer high-end consumers.?

Final Take
Dan Butcher, associate editor, Mobile Marketer