Verizon and AT&T Adding Millions of Cell Customers... But From Where?

Verizon Wireless and AT&T's quarterly earnings are both out, with Verizon claiming the "highest net adds in the industry," 1.5 million new subscribers, while AT&T says they've pulled in 1.3 million. (They both made out like bandits money-wise, as usual.) Between them, that's 2.8 million new subscribers. Where are they coming from? As of December, CTIA reports an 84 percent penetration, with 255 million subscribers. That weird orgy of unlimited plans a couple months ago further suggests that the market's already pretty saturated. I mean, do you know anyone still in the market for a cellphone? Where are all these new subscribers coming from?

Sprint is one likely source of bleed out, if past trends continue—most recent quarterly report from Feb. has them losing 108,000, and they lost 60,000 the quarter before that. I suspect the upcoming report will be worse. And AT&T told us that they port more numbers from Sprint than any other carrier. But that doesn't add up to the millions AT&T and Verizon are piling on (especially when you consider T-Mobile added almost a million last quarter (PDF) as well).

So we talked to a couple of guys who get paid to think about numbers and the wireless industry over at Gartner. There's actually a few things going on here that'll let the wireless industry continue to grow at about 20 million a year through 2012, even though it already looks pretty gorged. For one, "subscriber" doesn't mean just you—if you have two lines, a business and personal, as well as a PC card, you add up to three subscribers. Gartner just calls them "lines" to be more clear, since there's a significant number of second lines out there.

And that's where there's a fair bit of growth now: Second lines (like for an iPhone) and data-only PC cards. Informal estimates put 8-15% of US subscribers having two lines. Also, not huge, but growing, are devices like Kindle, with embedded data. Wireless analyst Tole Hart says data will be increasingly driving revenues over the next few years.

Demographically, new subscriber growth is in a couple spots. The average starting age of cellphone ownership has inched down from 14 to about 12, heading downwards. There's also a significant portion of our grandparents who are just starting to pick up cellphones. And finally, there's a socioeconomic expansion: Hart mentioned Hispanic populations in particular as a source of growth.

The US phone market will reach the true "saturation point" in the next five years, at which point data will become more important than ever. Hence the push for 4G technologies and focus on making networks suitable for data (like Verizon's move to be open). That said, Verizon and AT&T will no doubt still be happy to report stealing customers from smaller carriers.