All of the nation's top wireless service providers recorded the addition of thousands of new wireless phone customers during the second quarter. And that growth raised some questions among some Wall Street analysts as to exactly where all these new customers are coming from.
“In 2Q18 the wireless industry phone base grew by 2.5% Y/Y whereas it’s typically ~1% and in-line with U.S. population growth,” wrote the analysts at Wall Street research firm Cowen and Company. “The postpaid wireless phone base grew by 2.4% Y/Y led by T-Mobile and despite a prepaid-to-postpaid migration the prepaid wireless phone base grew 3.2% Y/Y. The Big 4 carriers plus Comcast have a base of 265.9MM wireless phones which is ~100.4% of the U.S. population over the age of 14.”
After all, the analysts noted that during the second quarter each of the nation's top wireless network operators posted notable gains in their customer numbers:
AT&T posted 46,000 postpaid phone net customer additions.
Sprint notched postpaid phone adds of 87,000.
T-Mobile added 686,000 postpaid phone net adds.
And Verizon recorded postpaid net adds of 531,000.
Interestingly, the Cowen analysts found a similar trend in the market for wireline internet services. “In 2Q18, the industry surprisingly gained 2.4% broadband subscribers Y/Y, a rebound after the previous two quarters of 2.1% growth,” they wrote. “It’s especially surprising given the seasonally softer quarter and overall market maturation story. Strength in Cable broadband would not have been overly surprising as we could have attributed strength to share-stealing from Telcos. However, even the Telcos showed surprising strength (including the smaller RLEC’s such as Windstream, posting internet gains for the first time since 1Q15). The broadband acceleration was not driven by greenfield builds, as we’ve seen no meaningful growth in additional homes.”
So where are all these new telecom customers coming from? The Cowen analysts pointed to the growing economy as a possible factor. “The growing inherent value of broadband (as a necessary utility) coupled with the stronger economy could be partly responsible, which one could also argue bolstered the broadband penetration to lower-income households,” they wrote.
The same may be true for growth in the wireless industry. In fact, T-Mobile's management was asked this exact question during the company's second-quarter earnings conference call with investors. CEO John Legere said “you're seeing some softening in the prepaid subsector and that's not necessarily all in one quarter, it's a trend over the past six months, it was strong in some cases this quarter, driven by prepaid other, other than phone devices, but there's been a transference of trend over the past years, so—and that's partly due to the economy,” according to a Seeking Alpha transcript of his remarks. “So what's happening is more people are qualifying for postpaid than they were a year or two ago and when you can qualify for postpaid, a lot of people take it because they want these device financing deals that they're now qualifying for. So I think that's been a healthy trend for the industry and it's at least in part driven by the economy.”
The Cowen analysts said that other factors may be in play, however: “We believe changes in population demographics are playing a part including phones reaching a younger base and/or younger people now getting phones and replacing older people who never had a phone.”