AT&T, Verizon trail cable in Q2 broadband subscriber race with DSL declines

AT&T (NYSE: T), CenturyLink (NYSE: CTL) and Verizon (NYSE: VZ) lost ground in the second quarter 2015 broadband race to cable as each provider continued to shed traditional DSL subscribers and implement new growth strategies.

Despite seeing a rise in video subscriber losses, it's clear that cable had the upper hand in the second quarter broadband game. A new Leichtman Research Group report revealed that cable added nearly 510,000 broadband subscribers during the period.

AT&T and Verizon did see a collective gain of 313,000 new broadband subscribers via U-verse and FiOS, but reported a net loss of 474,000 DSL subscribers. Interestingly, Verizon's second quarter overall FiOS broadband additions of 72,000 trailed the 139,000 FiOS connections added in second-quarter 2014.

LRG said that U-verse and FiOS broadband subscribers now account for 56 percent of telco broadband subscribers , up from 42 percent two years ago.

"While Telcos lost more broadband subscribers in 2Q 2015 than in any previous quarter, cable companies added over 500,000 subscribers for the fourth consecutive quarter," said Bruce Leichtman, president and principal analyst for Leichtman Research Group, in a release. "Over the past year, cable has accounted for 95% of the approximately 3,000,000 broadband additions."

In AT&T's case, part of the issue could be attributed to the growing pains of its Project VIP network transition where it is migrating existing DSL customers to its higher speed U-verse broadband platform.  

"We did add about 240,000 IP broadband customers in the quarter as we continue to reposition our DSL base to IP," said John Stephens, CFO of AT&T, during the second quarter earnings call. "That work is nearing completion with less than 1 million eligible DSL subscribers left to transition."

At the same time, AT&T said that it is seeing some near-term pain with its move to attract more profitable U-verse video customers.

"You also see our focus on profitability and repositioning our customer base with U-verse," Stephens said. "Video net adds dropped with fewer promotions and are targeting of high value subscribers."

Meanwhile, Verizon's lower FiOS broadband additions may be attributed to the fact that the telco is reaching saturation with its existing FTTH markets like Texas and New York City. It also remains adamant that it won't expand FiOS services into new areas and it is in the process of selling off its wireline properties to Frontier in California, Texas and Florida.

AT&T and Verizon aren't the only ones going through IP-based broadband growing pains.

CenturyLink is facing a similar situation. During the second quarter, the telco added only 9,000 new broadband subscribers, ending the period with a total of 6.1 subscribers.

Glen Post, CEO of CenturyLink, said during its second quarter call that it plans to implement new credit policies specifically for its Internet-only customers as a means to alleviate the pain of customers that leave "unpaid balances when they exit."

Post said that the new credit policies will initially stunt new broadband growth, but over time it will enable it more effectively battle churn.

"Now while we expect this change to negatively impact consumer broadband net subscriber additions through the remainder of 2015, we anticipate this adjustment will actually help improve our broadband growth in 2016 due to lower churn," Post said.

For more:
- see the LRG release

Related articles:
Verizon's FiOS Internet growth slows in second-quarter 2015 despite uptick in 75 Mbps speed adoption
AT&T's Stephens: We're encouraged by our 1 Gig progress
CenturyLink's Post: New credit policy will enhance consumer broadband growth, reduce churn