Apple Has Plenty of Growth Drivers up Its Sleeve to Fuel 2016
US telecom industry has evolved over the last few years
In the previous part of the series, we discussed how Apple’s (AAPL) new program, the iPhone upgrade program, could help the company in shortening the iPhone upgrade cycle. Now we’ll analyze the impact of this program on US telecom providers or carriers.
Traditionally, the US wireless providers offered subsidized iPhones along with two-year contracts. This gradually changed to carriers offering installment plans under which users pay for their smartphones in equal monthly installments and also have the flexibility to trade in or upgrade to a new smartphone. Such plans provide more flexibility to customers who like to frequently upgrade their devices.
Under the iPhone upgrade program, users are free to choose their telecom provider like Verizon (VZ), AT&T (T), Sprint (S), and T-Mobile (TMUS). With installment plans, customers were tied to a single carrier while the iPhone upgrade program provides flexibility to users to choose their carrier.
Churn rate for telecom providers could increase
Such a mechanism is bound to increase the churn rate for telecom providers because users are free to choose their carrier. As the chart above shows, Verizon’s churn rate of 0.93% is the best among major US telecom providers as of 3Q15. AT&T is second in terms of churn rate at 1.2% while T-Mobile and Sprint both have high churn rates at 1.5%. Keeping the churn rate low is important for all carriers, as a higher churn rate means that subscribers move out of a network too often. This increases the costs associated with acquiring a new customer for the company.
Instead of investing directly in AT&T’s stock, you can consider taking on diversified exposure to the telecom company by investing in the iShares MSCI USA Minimum Volatility ETF (USMV). The ETF has invested ~1.5% of its holdings in the company.
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