75% of AT&T customers now own smartphones and they’re buying a lot more data

[Commentary] You would think AT&T is getting close to smartphone saturation. As of the end of the third quarter, three out of every four of its contract customers now owns a smartphones, and the large majority of its new activations are replacing older smartphones on its network. But AT&T continues to grow its smartphone base. It added 1.2 million smartphone connections in the third quarter. 178,000 of them were new customers coming from other carriers, but the remaining 1 million were all current customers upgrading from feature phones.

AT&T added the same number of net new smartphone subscribers in the second quarter as well, and given the refresh of the iPhone line and the usual holiday spurt, we’ll likely see even more smartphone net adds in the fourth quarter. When will the growth stop, or at least slow down? At 90 percent saturation would be a good guess. For the last several quarters, AT&T has pretty consistently sold nearly nine smartphones for every one dumb-phone sold. There are still millions of people who still want feature phones, but they only account for about 10 percent of AT&T’s contract subscriber base. Of course, many of those feature phone users are likely moving to AT&T and other carriers’ prepaid services where costs are much cheaper, but smartphones are also making tremendous gains among prepaid subscribers as well. AT&T added 190,000 prepaid subscribers in the third quarter compared to 363,000 net postpaid additions.