Is DSL dipping or diving?

BigBand NetworksThe nation's largest cable and telecommunications providers hit a new low in the number of new broadband subscribers they signed up in 2Q 2010. Additions were the fewest in any quarter over the past nine years, according to a recently released report by Leichtman Research Group Inc. (LRG).

A net loss of 92,000 subscribers chalked up by AT&T (NYSE: T) marked the first time that any of the top 10 broadband providers reported a quarterly net subscriber loss. The nation's top telcos suffered a net loss of 7,500 subscribers compared to the 385,000 they gained during the same time period last year, according to the report. AT&T and Verizon (NYSE: VZ) added 451,000 subscribers in the quarter on their respective U-verse and FIOS networks, but lost 515,000 DSL subs in turn.

Despite the loss of DSL lines, the top cable companies added 340,000 broadband subscribers, about 140 percent of the gains last year. But in total, broadband additions in 2Q 2010 only amounted to 53 percent of those counted in 2Q 2009 by LRG.

So, what's going on, especially with DSL?

LRG and the other analysts agree that second quarter growth is typically slower than the other quarters. They also agree that the market is reaching maturity. After 10 years of deployment and lots of pent up demand, many people already have broadband.

As the market gets more saturated and net additions decrease, cable operators and telcos are beginning to churn off one another, said Matt Davis, director, consumer & SMB multiplay services, IDC.

Fiber installDavis added "it's like trench warfare now."

And there is internal churn. Verizon and AT&T's multi-service fiber, or fiber plus copper-based, offerings are being sold at the expense of their "traditional" DSL services, said Bruce Leichtman, president and principal analyst for LRG.

"I see DSL phasing out over time because people are increasingly adopting FiOS or U-verse," added Robert Rosenberg, president, Insight Research. "They are the big dogs on the block and they are pushing the national picture on what constitutes the new normal."

The economy cannot be ignored either, said Rosenberg. People who have to cut expenses to keep their homes are "throwing DSL overboard" and keeping their mobile phones.

"Everyone has mobile data plans, so they can look at their e-mail and send it out without a desktop connection," he explained.

Which way?

Then there is the fork-in-the-road theory, which has customers and service providers wondering which way the other is going.

"Verizon's DSL numbers have been declining for a considerable period of time," said Teresa Mastrangelo, Principal Analyst, Broadbandtrends. "They have been transitioning to FiOS, but more importantly they have failed to invest in their copper infrastructure."

Mastrangelo added that with FiOS, Verizon is introducing 50 Mbps and 100 Mbps fiber products to some customers while offering 1.5 Mbps to others, which is leaving some big gaps in their territory.

Meanwhile, Cablevision (NYSE: CVC), Comcast (Nasdaq: CMCSA) and Cox have made significant DOCSIS 3 investments and are offering their customers better speeds and better bundling, said Mastrangelo. And cable operators that are leveraging Clearwire's (Nasdaq: CLWR) network to offer bundles that include mobile broadband have an attractive package to offer their customers. 

Cable operators also a marketing advantage because they have a better channel to their market, said Vince Vittore, principal analyst for The Yankee Group. For next to nothing, they can recreate and run ads for their services on TV as often as they please.

"That's a lot more dynamic than a postcard in the mailbox," said Vittore. 

In addition, as mobile broadband improves, demand increases and prices drop, people will walk away from their fixed lines. But there will always be limits on wireless, so the end game has got to be fiber, said Rosenberg. At the moment however, the 18-to-34 generation sees the future wirelessly.

"Last night my kids were watching TV shows with their laptops on their bellies, picking whatever they wanted to watch," he says. "The TV was sitting right next to them, but they had no use for it."

Broadband Internet Provider

Subscribers at End of 2Q 2010

Net Adds in 2Q 2010

Cable Companies

   

Comcast

16,448,000

119,000

Time Warner

9,606,000

96,000

Cox*

4,285,000

35,000

Charter

3,187,900

21,900

Cablevision

2,637,000

27,000

Mediacom

814,000

10,000

Insight

517,500

1,200

Cable ONE

406,900

1,589

RCN

316,000

1,000

Other Major Private Cable Companies**

2,320,000

31,000

Total Top Cable

40,538,300

343,689

     

Telephone Companies

   

AT&T

15,952,000

(92,000)

Verizon

9,338,000

28,000

Qwest

2,859,000

7,000

CenturyLink

2,336,000

30,000

Windstream^

1,274,800

14,700

Frontier

647,487

3,427

FairPoint*

295,000

0

Cincinnati Bell

249,000

1,400

Total Top Telephone Companies

32,951,287

(7,473)

     

Total Broadband

73,489,587

336,216

Sources: The Companies and Leichtman Research Group, Inc.
* LRG estimate
** Includes LRG estimates for BrightHouse Networks, and Suddenlink
^ Windstream total includes the purchase of Iowa Telecom
Company subscriber counts may not represent solely residential households
Totals reflect pro forma results from system sales and acquisitions
Top cable and telephone companies represent approximately 93% of all subscribers
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Is DSL dipping or diving?