Editor’s note: Verizon has announced a return to unlimited data plans, but T-Mobile remains a step ahead of competitors through its T-Mobile One strategy, says Technology Business Research Analyst Steve Vachon.

HAMPTON, N.H. – Competitors continue to follow T-Mobile’s lead in the postpaid market, as T-Mobile’s latest earnings report from earlier this week shows.

Through the launch of T-Mobile One, T-Mobile once again revolutionized the U.S. wireless industry, causing rivals to follow the company’s lead in its unlimited data strategy much in the same way it did by eliminating postpaid contracts at the start of its Un-carrier movement in 2013. T-Mobile One’s success places rivals in a reactionary position once again, highlighting that T-Mobile remains the chief trendsetter within the U.S. postpaid market and competitors are following in its footsteps.

Verizon reinstated its unlimited data programs in February to curb postpaid phone subscriber losses to T-Mobile, which TBR views as a last resort for Verizon as the company previously downplayed unlimited data because it did not deem it as a profitable strategy. Sprint (NYSE: S) must resort to aggressive pricing promotions to sustain the momentum of its Unlimited Freedom plans and to remain competitive with T-Mobile One. Conversely, TBR anticipates competitors will follow T-Mobile’s lead in 2017 by tucking extra fees and taxes into their postpaid rates as consumers grow accustomed to this incentive.

Following the unveiling of Verizon’s new unlimited plans, T-Mobile quickly responded by announcing it will now include HD quality video as part of T-Mobile One at no additional fee, an upgrade from the default setting of 480p that it previously offered. Though T-Mobile’s announcement will enable the company to compete more aggressively against Verizon’s new unlimited plans, the operator will need to ramp up investment in densification builds to support the mobile video traffic that will flood its LTE network over the next several years. T-Mobile increased its annual capex guidance in 2017 compared to 2016 spending in large part to ensure optimal network quality as it risks losing customers to Sprint’s more aggressive pricing offers if T-Mobile’s network quality lapses.

The success of T-Mobile One amid the holiday season fueled the company’s highest revenue growth since 2014

Continued high postpaid and prepaid subscriber additions contributed to T-Mobile’s total revenue increasing by 23.4% year-to-year to $10.1 billion in 4Q16. Contrary to the current industry trend, T-Mobile increased branded postpaid phone ARPU both year-to-year and sequentially due to customers moving from tiered data plans to T-Mobile One. Though TBR anticipates postpaid phone ARPU will continue to rise throughout 2017 due to T-Mobile One migrations, long-term growth will be limited because customers will no longer need to upgrade to a larger and more expensive data tier, and T-Mobile is also no longer charging extra fees for HD video now that it is a standard feature.

Market saturation will cause phone subscriber additions to decelerate over the next couple of years, causing T-Mobile to deepen its focus on the Internet of Things (IoT) through offerings such as the company’s new IoT Access packs and targeted promotions for 2G AT&T machine-to-machine customers. T-Mobile will struggle in the near term, however, to gain significant traction against AT&T and Verizon in the IoT space due to its competitors’ scale and entrenched relationships among enterprises. T-Mobile’s limited IoT portfolio will also hinder the company’s ability to gain larger-scale deals such as smart city contracts.

(C) TBR