The second quarter has always been a time when service providers lose broadband subscribers, but a series of new speeds and pricing promotions helped drive up their subscriber bases and offset declines in legacy voice and DSL services. In our quarterly earnings wrap, we examine the broadband growth trends of all of the major U.S.-based service providers.
At the two largest U.S.-based telcos--AT&T (NYSE: T) and Verizon (NYSE: VZ)—the story was about driving customers off of legacy DSL and attracting new subscribers to their next-gen U-verse and FiOS broadband platforms.
AT&T added 641,000 U-verse broadband subscribers in the quarter to reach a total of 9.1 million subscribers. However, it had a net loss of 61,000 wireline broadband subscribers. U-Verse high-speed internet customers now represent 55 percent of all wireline broadband customers compared with 50 percent in the year-ago quarter.
Likewise, Verizon reported it added 161,000 net new FiOS Internet connections. In addition to signing up new customers in areas where it has built out its fiber to the home (FTTH) network, Verizon converted 86,000 of what it calls "chronic copper" customers, or those customers to whome it had to deploy multiple service calls, to FiOS.
Fran Shammo, CFO and EVP of Verizon, said during Oppenheimer's 16th Annual Technology, Internet & Communications Conference in Boston that it may exceed its 300,000 subscriber target of transitioning customers from copper to FiOS by the end of this year.
It should be noted that as more customers migrate to FiOS and U-verse, AT&T and Verizon lost 61,000 and 116,000 DSL subscribers, respectively. Neither telco broke out how many of their customers migrated over from DSL or churned to a cable operator.
Speed was another factor. With Google Fiber (Nasdaq: GOOG) driving the utility of higher bandwidth into the consumer's broadband consciousness, AT&T and Verizon introduced a series of new speed tiers.
After months of speculation, AT&T unveiled a 45 Mbps U-verse service--initially in California and Nevada. During the Q2 earnings call, AT&T CFO John Stephens said that after starting with 45 Mbps, it will then progress to 75 Mbps and eventually to 100 Mbps speeds.
Following up on its 300 Mbps Quantum offering it introduced last year, Verizon launched a 500 Mbps tier. Eligible residential subscribers can get the new speed offering as part of either a double-play bundle for $309.99, or a triple-play bundle for $329.99, under a two-year agreement.
Broadband additions were not universal across of the telcos. As it forecast at the end of the first quarter, CenturyLink (NYSE: CTL) lost 8,400 broadband subscribers, which it said were "due to typical seasonality and lower than expected indirect sales."
Like AT&T and Verizon, CenturyLink is experimenting with higher speed FTTH.
CenturyLink also began a pilot deployment of a 1 Gbps-capable FTTH network in Omaha, Neb., by replacing an existing HFC-based network with fiber. However, a number of users in Broadband DSL Reports' user forum who have been converted to FTTH say they can currently get just 40 Mbps.
Outside of the top three telcos, Frontier Communications (Nasdaq: FTR) and Cincinnati Bell also saw some decent gains during the quarter.
Driven by its Simply Broadband offerings, Frontier added 29,500 new DSL customers, ending the quarter with a total of 1.8 million broadband customers. One of the key points of Frontier's growth was an aggressive advertising campaign touting its two broadband packages: a $19.99 broadband basic offer that requires an accompanying phone line and its standalone $29.99 Simply Broadband product.
"Customers love the simplicity, the value and the long-term certainty of honest straightforward pricing without the surprises of add on fees and [sticker shock] that follows the end of short-term promotional pricing offered by our competitors," said Maggie Wilderotter, CEO and Chairman of Frontier, during the Q2 earnings call.
Frontier is also being aggressive in trying to win over cable customers who don't like how cable is tacking on various fees for their broadband connections. In an effort to lure dissatisfied cable customers, particularly Time Warner Cable (NYSE: TWC) customers in Buffalo, N.Y., the telco launched its "Goodbye Time Warner" ad campaign.
Cincinnati Bell (NYSE: CBB) may have had modest gains of only 6,100 Fioptics FTTH broadband subscribers, but the telco said that in areas where it has converted customers to FTTH churn is only 1.6 percent. At the end of the quarter, it had 67,000 Fioptics broadband subscribers and 63,000 video subscribers, up 42 and 36 percent, respectively.
For a detailed look at how U.S. wireline providers performed during the second quarter take a look at our new feature, Grading the top 13 U.S. wireline telcos in the second quarter.--Sean