Each of the four major U.S. wireless carriers posted better-than-expected postpaid phone net additions in the fourth quarter.

Considering how saturated the wireless market is, it's surprising that AT&T (NYSE:T), Sprint (NYSE:S), T-Mobile (NASDAQ:TMUS), and Verizon Communications (NYSE:VZ) all grew their phone subscriber base in the same quarter.


Q4 2017 Postpaid Phone Net Additions









Data source: Quarterly earnings reports.

Add in growth from Comcast's new wireless service, and the industry saw over 2 million new customers subscribe to a postpaid wireless plan in the last three months of 2017. So, where are all these new subscribers coming from?

Close up on two hands holding a smartphone.

Image source: Getty Images.

A mass migration

The fourth quarter showed an interesting trend among the major wireless carriers. They're attracting fewer prepaid phone customers, as more customers opt for postpaid plans.


Q4 2017 Prepaid Net Adds

Q4 2016 Prepaid Net Adds
















Data source: Quarterly earnings reports

But that only accounts for about 365,000 fewer customers signing up for prepaid plans versus last year. The vast majority of Sprint's prepaid losses in 2016 were due to its focus on its wholesale segment and third-party prepaid brands. So, that might account for another 400,000 or 500,000 subscribers. But even adding those subscribers back into last year's numbers, the prepaid subscriber losses at the major carriers account for about half the difference in postpaid subscriber growth.

The picture becomes clearer when you look at the results of the biggest prepaid provider in the U.S., America Movil (NYSE:AMX). America Movil is the company behind brands like StraightTalk and Tracfone. It ended the fourth quarter with 23.1 million subscribers, down about 600,000 from the third quarter and 3 million for the full year.

Most of America Movil's disconnects came in its SafeLink brand, which relies on government subsidies for low-income families. But as fewer people were eligible for the program, those subscribers didn't show up in the carrier's prepaid subscriber base or other mobile virtual network operators (MVNOs).

Instead, we saw a meaningful increase in postpaid subscriber growth across all four major carriers. 

Is this growth sustainable?

The shift from prepaid to postpaid certainly benefits the major carriers. Postpaid phone subscribers are generally considered the most valuable customers in the industry since they typically pay more for services and devices.

The problem is that it's unclear what's driving consumers to switch from prepaid plans to postpaid plans.

If it's just people feeling confident about the economy, then the growth is certainly unsustainable. The next economic downturn could result in lots of disconnects and unpaid bills for carriers.

If it's that the carriers postpaid plans are starting to offer compelling value to typical prepaid subscribers, that would be more sustainable. The shift to unlimited data plans may have pulled more customers to postpaid subscriptions where plans can cost about the same amount (sometimes less) as similar prepaid plans, but with more benefits.

AT&T has been particularly energetic in pushing additional value into its postpaid plans through bundling. T-Mobile and Sprint have followed suit through partnerships, while Verizon remains content with a simple stand-alone offer.

Sprint has been very aggressive with its pricing to attract new postpaid customers, and it could be bring in plenty of former prepaid customers as well. It has repeatedly extended its first-year free promotion since last summer. Management says it plans to raise its pricing this year, but it could simply result in losing price-sensitive subscribers. Sprint's results look the least sustainable of all the major carriers.

Parsing out the numbers, the trend toward more postpaid subscribers doesn't seem particularly sustainable. That said, the carriers with stronger brands and networks are more likely to win a greater share of postpaid subscribers going forward. Those are Verizon and T-Mobile, in my opinion. Look for them to continue to capture an outsized portion of the most valuable customers in wireless.