Five reasons why US wireless growth is speeding up

Pretty much every American has a smartphone, right? So... why are the nation's wireless service providers reporting a significant rise in the number of new customers signing up for their services?

That question is at the heart of a new report from the financial analysts at Morgan Stanley. Indeed, they found that the US wireless industry collected a total of more than 7 million new postpaid phone customers during the past 12 months.

The analysts published a chart highlighting the situation:

Net customer additions for postpaid phone customers
Wireless service providers - including network operators like AT&T and cable MVNOs like Comcast - are raking in new customers at rates that are growing, not shrinking. Click here for a larger version of this image. (Source: Morgan Stanley)
Wireless service providers – including network operators like AT&T and cable MVNOs like Comcast – are raking in new customers at rates that are growing, not shrinking. Click here for a larger version of this image.
(Source: Morgan Stanley)

"This result defies predictions that we were reaching saturation and that cable's entry into the wireless market would significantly pressure the Big 3 [T-Mobile, Verizon and AT&T]," they noted in their report. The analysts outlined a handful of factors they said are contributing to the surprising growth:

1. Kids are getting phones. The analysts noted there are currently 230 million wireless postpaid phone customers in the US. That's roughly 70% of the 330 million people who live in the country, a figure that's growing by around 2 million a year. The analysts speculated that part of the growth among postpaid phone customers is due to the move by parents to buy phones for their kids at increasingly younger ages. While phone ownership among tweens and children used to be rare, that's apparently changing.

2. Prepaid customers are becoming postpaid customers. The lines between prepaid service (where customers pay before they use services) and postpaid service (where customers pay after they use services) are increasingly blurring. Indeed, T-Mobile recently confirmed it plans to sell prepaid services directly alongside postpaid services in some of its corporate retail stores. Thus, this may be pushing some prepaid customers to choose more useful postpaid plans. However, the analysts at Morgan Stanley speculated this is not a major factor in the overall growth of postpaid phone customers in the US.

3. People are buying more than one line of service. The Morgan Stanley analysts estimated that around 6% of smartphone customers own one phone for personal uses and another phone for work. And they speculated that a pandemic driving workers outside of their offices is helping to increase that figure.

4. COVID-19 stimulus checks, and boredom, are driving phone sales. A number of wireless executives said they saw a spike in phone sales this year after the US government began doling out hundreds of dollars in stimulus cash to every American. And the Morgan Stanley analysts speculated that those new customers may have been attracted to wireless service plans offering access to streaming video services such as Netflix (T-Mobile), HBO Max (AT&T) and Disney+ (Verizon). As COVID-19 lockdowns ease, it's unclear whether such streaming services will remain popular, but they certainly made quarantine less boring.

5. Free lines of service are free, so why not? The Morgan Stanley analysts speculated that some of the growth among postpaid phone customers in the US was due to the activation of free lines of service. Indeed, T-Mobile offered a promotional third line of service for free. However, T-Mobile executives have pushed back against the notion that the operator's growth is solely due to the sale of free lines of service, and the Morgan Stanely analysts said they tend to agree. Such offers "appear to be a factor," they argued, but "the impact is modest."

Bottom line

The Morgan Stanley analysts ended their report with another important question: Will the growth continue?

"In the near-term it does appear that momentum heading into 2Q21 is solid," they wrote. However, "over the medium-term, we would expect some mean reversion with consensus expectations of around 6 million [customer] adds per year over the next couple of years. There is a scenario where growth will slow more than that, which could lead to more aggressive competition in the months and years to come."

But not to worry, they wrote: "While this analysis is focused on smartphones, carriers are hoping that 5G will bring significant growth in connected devices, wearable [devices], IoT, ect., which can supplement the mature smartphone market."

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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