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

You would think AT&T(s 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.

iPhone 5s groupWhen 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.

Upgrading a feature phone user to a smartphone user brings in a lot more monthly revenue for AT&T since all smartphones required data plans. But even if AT&T’s smartphone growth were to level out tomorrow, its data growth wouldn’t stop. AT&T has been particularly artful in the last year at getting smartphone users to upgrade to more expensive data plans.

According to its figures, only 9 percent of its customers on usage-based plans bought a 4GB-or-higher data bundle last fall. At the end of Q3, that number had more than doubled to 22 percent. Nearly 80 percent of all subscribers not on an unlimited plan are purchasing 2 GB or more of data each month.

A lot of that has to do with AT&T’s mobile share plans, which on Friday become mandatory for all new smartphone subscribers, allowing them to dip multiple devices into the same data bucket. But much of that growth just comes from consumers increasing appetites for mobile internet services and the greater sophistication of our devices.

iPad Air blackWhen AT&T’s smartphone growth does slow down, it will have other devices to fall back on. AT&T added 388,000 tablet connections in Q3, its third successive quarter of 300,000-plus tablet activations (with the launch of the new iPad Air and iPad mini next month, AT&T will almost certainly pull off a fourth).

In total, AT&T added 719,000 machine-to-machine connections, which include tablets, PCs, modems and an increasing number of devices in the internet of things. AT&T has made considerable headway in the emerging connected car space. It revealed last week at GigaOM’s Mobilize conference that its connecting all of Tesla’sI(s tsla) current and future vehicles. Starting next year, General Motors(s gm) will start embedding an AT&T LTE chip into new vehicles.