Tier 1 telcos AT&T and Verizon saw another round of broadband growing pains in the second quarter, with more of their customers purchasing higher speed IP-based broadband and fiber while legacy DSL losses grew.
AT&T’s overall broadband revenues were down slightly in the second quarter, but IP broadband revenues grew by 3.2%.
The telco continues to see broadband gains as customers chose higher speeds. During the quarter, AT&T added 112,000 IP broadband subscribers, but lost 104,000 legacy DSL subscribers, resulting in only a small overall gain of 8,000 broadband subscribers.
Verizon, likewise, saw similar trends in its broadband segment.
In the second quarter of 2017, Verizon added a net of 49,000 Fios internet connections but lost 15,000 Fios video connections as more of its customer base migrated to over-the-top video offerings.
At the end of the quarter, Verizon had 5.7 million Fios internet connections and 4.7 million Fios video connections, representing year-over-year increases of 4.4% and 0.6%, respectively.
The gains in Fios helped to offset ongoing DSL subscriber losses to cable competitors.
Verizon’s loss of 72,000 DSL subscribers was wider than the consensus expectations of 51,000. This likely is a reflection of the fact that cable is using its DOCSIS 3.1 and related upgrades to its existing hybrid fiber-coax (HFC) to offer higher speeds DSL can’t reach, from 100 Mbps to 1 Gbps, where Fios is not available.
AT&T ramps speed, bundles
For AT&T, consumer adoption of higher speed broadband tiers is having an effect on long-term broadband growth.
Nearly 60% of AT&T’s broadband customers currently have broadband speeds between 18 Mbps and 1 Gbps, with the number of customers with speeds of 18 Mbps or faster has rising by 1.6 million in the past year.
At the same time, the company continues its fiber deployment. The company now markets AT&T Fiber to more than 5.5 million customer locations in 55 markets.
On the VDSL2 front, the telco continued to make progress in migrating legacy DSL customers to the new platforms. AT&T noted that only 1 million DSL subscribers remain in its total broadband subscriber base. IP broadband subscribers benefited from the expansion of the AT&T fiber network and simplified pricing to end the quarter with a total of 13.2 million subscribers.
John Stephens, CFO of AT&T, said that the combined efforts of the FTTP build and converting more customers from legacy DSL to IP broadband is helping drive up subscriber additions.
“The DSL conversion combined with extending fiber to 5.5 million customer locations is strengthening our broadband position,” Stephens said. “In fact, the number of broadband subscribers on speeds of 18 Mbps or higher has increased by 6 million in the past year.”
Stephens said that AT&T expects to increase video and overall broadband revenues in markets where it can bundle multiple services. By deepening its FTTH footprint, the telco will be able to more effectively battle cable competitors with integrated bundles of voice, DirecTV video, data and wireless.
“We believe we’ll address that as we continue to build out fiber,” Stephens said.
Wells Fargo agreed with AT&T’s assessment on bundling.
“We sense where T's fiber footprint is deep, the DTV product does especially well,” Wells Fargo said in a research note.
Verizon’s 1 Gbps bets
While late to the game, Verizon’s new bet on 1 Gbps FTTH paid off during the second quarter as the telco was able to bolster its Fios broadband subscriber base, adding 49,000 new subscribers.
MoffettNathanson Research noted that Verizon’s Fios internet subscriber gains were higher than analyst expectations of 36,000 new subscribers.
The research firm said that Verizon’s broadband gains “likely reflect the early success of Verizon’s pivot to selling standalone 1 GB broadband across their Fios territory.”
Still, analysts noted that the Fios results were muted by video and DSL losses.
“FiOS volumes were mixed, with stronger Internet adds of 49k (JEFe +25k, Street +36k) while video subs declined by -15k, below our -8k but inline with the Street's -16k,” said Jefferies in a research note.