Q2 finds telcos under pressure

Just about every big U.S. telco and many of the small ones have reported second quarter earnings by now, and while the those reports could have been much worse amid turbulent economic conditions, telcos and telco watchers have much reason to be concerned about the future. That is because most of them are now under pressure not only in their legacy businesses (landline voice), but also in the next-generation business (broadband) that is supposed to be off-setting legacy market pressure.

Most U.S. telcos continued to lose landlines at rates ranging, for the most part, from 5 percent (Windstream) to 7.8 percent (Embarq) and on up to 10.2 percent (Qwest), but telcos have had a few years to get used to these numbers. They are no longer surprising, even though their ongoing uptick is extremely disconcerting. What they have not yet gotten used to, but have been warned about by market researchers within the last year or so, is a slowing in broadband subscriber growth. The second quarter of 2008 was perhaps the first time we have seen evidence of that pressure on an industry-wide basis, with AT&T, Verizon and other telcos adding broadband subscribers at slower rates.

Bundling and TV services are supposed to keep the problems of landline voice decline and broadband adoption slowness from having a tag-team effect on telcos, but those would-be saviors are not working quickly enough.

Perhaps it is still too early to panic. Telco TV services are still in their infancy, and though bundling strategies have been around for a long time, telcos are only now beginning to experiment with bundles that are not tied to those old landlines. If they can break their dependence on the past, maybe they can focus more on the future, and the challenge of getting as much out of new services and network connections as possible. Maybe the thing to do now is to accelerate the landline voice exodus by making voice a reason for customers to value their telco broadband connections more.

If telcos don't feel that way yet, third quarter earnings reports may yield a few more selling points.

-Dan

For more:
- check out our Second Quarter Earnings page

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