The results are in, and it’s clear: The major players in the wireless industry reported fourth-quarter numbers far exceeding estimates. In fact, virtually all of the market’s heavyweights—including Verizon, T-Mobile and AT&T—reported net postpaid customer additions well above Wall Street analyst expectations.
And that raises a particularly noteworthy question: Where are all these new postpaid customers coming from?
“The industry added too many subs this quarter,” wrote the analysts at New Street Research in a note to investors following the release of Sprint’s quarterly results. “The carriers have reported 2MM postpaid phone adds, compared to an estimate of 1.5MM. Fourth quarter adds have been in the range of 1.5MM for the past several years. Where are they coming from?”
Specifically, in the fourth quarter:
Verizon reported postpaid phone net additions of 431,000;
T-Mobile announced 891,000 postpaid net phones additions;
AT&T notched postpaid phone net additions of 329,000;
Sprint reported postpaid phone customer additions of 184,000;
And Comcast’s Xfinity Mobile MVNO counted added an estimated 180,000 postpaid customer lines.
“Has there been a surge in immigration? Or did we start giving iPhones to three-year-olds for Christmas last year?”
wondered the analysts from New Street. “Or have the carriers loosened credit standards, taking advantage of record low industry churn? Or is something more nefarious afoot? We have asked all the carriers all the right questions, and they have all denied changing credit or accounting. Apple watches aren’t being counted as phones. The mystery remains.”
At least one Wall Street analyst firm has an answer to the conundrum.
“The answer is … from prepaid,” wrote the analysts from Wall Street research firm MoffettNathanson.
“What many expected to be a zero-sum game for postpaid net adds didn’t turn out that way. The industry total of 1.8M retail postpaid phone net subscriber additions bested last year’s total by almost half a million subscribers. Everyone turned out to be better than average,” the MoffettNathanson analysts wrote in a report released immediately after Sprint posted its quarterly financial results. MoffettNathanson’s tally doesn’t include Xfinity Mobile, which is an MVNO of Verizon. “But retail prepaid phone net additions dropped by more than 400K from last year. The net change was a modest 52K. The industry grew a little faster, but not dramatically so.”
The analysts at MoffettNathanson noted that AT&T and Verizon did much better in the postpaid market this year compared with last year, while Sprint did worse and T-Mobile performed roughly about as well as it did last year. But the results are clear: “The broader narrative that we have seen a significant shift from prepaid to postpaid remains.”
Added the MoffettNathanson analysts: “Whether this is a sign of the relative attractiveness of postpaid versus prepaid offers and/or available handsets, or whether it is a sign of one or more players relaxing their credit standards for postpaid is unclear.”
Others concurred. "Industry prepaid adds were at their lowest levels in nearly three years, thus we estimate total industry phone adds were up just 6% Y/Y, implying an unusually outsized prepaid to postpaid migration," the analysts at Cowen and Company wrote. "Whether this dynamic will continue and what exactly drove it is unclear, although it could either be more attractive postpaid plans or the bullish macro environment."
T-Mobile and U.S. Cellular are the two wireless network operators that have not yet reported their full quarterly results.