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Summary:

Baby Bells are in a race against time, trying to get their video services rolled out before they lose their grip over their core franchise: the voice customer. It is critical for the phone companies to keep people talking on their lines, if they want to […]

Baby Bells are in a race against time, trying to get their video services rolled out before they lose their grip over their core franchise: the voice customer. It is critical for the phone companies to keep people talking on their lines, if they want to sell them broadband and video services in the future, a point we had made earlier.

UBS Research report shows that dark ominous clouds have gathered over the Bellville, and provides a statistical support for my thesis.

  • In the fourth quarter 2006, the Bells lost 5.1% of homes served on an annual basis, driven by increasing cable voice net adds. Consumer revenues skidded as a result.
  • Currently, Bells pass roughly 97 million homes and serve 64 million on a retail basis, about 65% penetration of homes passed. That’s down from 68% penetration a year ago.
  • Cable is eating their lunch. The top seven cable companies added 964,000 new telephony subscribers, getting to a total of about 8.3 million voice subscribers (estimated) or about 7.3% of U.S. households, up from 4.5% a year ago. The independent VoIP players have 2.6 million subscribers. The total cable & VoIP competition represents nearly 10% of the U.S. households, versus 6% of US households a year ago.
  • The consumer ARPU could not completely offset volume declines. Broadband revenues are slowing as well, mostly due to increased penetration.
  • Video is their salvation and has a big impact on ARPU, as shown by Verizon despite overall low penetration levels. No wonder AT&T is desperate and pushing hard to get Uverse rolled out in volumes, hopefully by 2008.

bellaccesslinelosses.gif

Bells got $34 in average DSL revenues in the fourth quarter, down 9% annually, and only added 1.138M new subscribers in 4Q, down 18% annually and 3% sequentially. The Bells now penetrate 33% of homes served with broadband, up from 31% in the 3 quarter 2006 and 25% a year ago. AT& T leads the group with 39% penetration, followed by BellSouth at 34%, and Verizon and Qwest at 29% each.DSL revenues are becoming a larger portion of the Bell revenues – about 20% of consumer ARPU, and any access line losses means that that the bells’ addressable market for DSL (and video) services declines quite a bit. Among the Bells, AT&T generated the highest contribution from DSL at 21% and Verizon the lowest at 18%.

A quick fix to this would actually be better offerings – higher downstream and better upstream speeds to counter the cable operators who are charging more for their beefier offerings. Time Warner and Cablevision, for example have started offering “more” bandwidth. Higher speed DSL packages were working for BellSouth, and maybe the new parent could do the same. If they don’t then, there are other options, like Covad-powered Earthlink ADSL2+ packages.

Data & Chart: UBS Research

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  1. its4us2think Monday, March 5, 2007

    I would say they should stop gouging their customers on bells and whistle features on their land lines. Isn’t it ridiculous that they increased their CallerID charges to $8 per month (in California).

    If they continue with such pricing, of course people would jump to VOIP from Comcast and other independent operators who are offering most of these bells and whistles for free.

  2. The Bells STILL don’t get it. I remain a landline user with an unlimited long distance plan. I never liked any of the VOIP options I tried (and I’ve tried several). I’m old school in liking the reliability of landlines.

    However I was shocked to read a notice in my recent Bellsouth bill that the voicemail fee was going from $4 to $5 per month. That’s a 25% increase !!!! This fee is in addition to my premium local and unlimited long distance packages.

    This is a business in decline and rather than enhancing value to retain customers, they continue to nickel & dime. Bellsouth should be sending out notices that voicemail is now included in its premium local and long distance packages — rather than increasing the fee 25% !

    So I cancelled my voicemail service. I get an overall 8% reduction in my Bellsouth bill, and deny them their $1 increase AND the $4 they’ve been receiving for years.

  3. In the NY area, where Cablevision has been successful against Verizon, Verizon is running radio ads on reliability. They have a lot of statements about “no matter the weather” and so “it’s there.”

    Mainly attacking the service in a power outage issue that cable voip suffers from.

    At the end of the ad, when the talking stops and the music stops, they insert the disclaimer – duration of service in a power outage will vary.

    Yes, they don’t get it.

  4. I’m in the pac-hell area and I’m currently going through tech support hell with my dsl. I’m just about ready to ditch “the new AT&T”, if my life is going to be that miserable I don’t need them to bring it to me, as their stupid slogan says. Om, this would be an awesome story for you to feature, as an “ongoing saga from the trenches”, what it’s really like when you need tech support from AT&T –> a fast trip down to hell.

    You have my email from the comment, if you want more details let me know, I have a full log of all that transpired in the week and 1 day (so far) since my DSL broke and it hasn’t been fixed yet.

  5. The Bells’ Challenge…

    Om Malik points to some numbers of UBS Research on how the incumbent phone companies are losing market share to cable VOIP, and pushing video as their salvation…….

  6. John Thacker Monday, March 5, 2007

    A quick fix to this would actually be better offerings – higher downstream and better upstream speeds to counter the cable operators who are charging more for their beefier offerings. Time Warner and Cablevision, for example have started offering “more” bandwidth.

    Time Warner and Cablevision are also offering faster bandwidth especially in places with Verizon’s FiOS. FiOS is great, but it’s not exactly a “quick fix.” But maybe it is time for faster DSL offerings, assuming it’s possible. The Bells were competing on price by offering cheap DSL, for the people who are just as happy on 768k DSL as on faster cable modems, and might even be still on dial-up, and got a lot of adds that way– but that growth slowed down from last year.

  7. I wrote a response on my blog, IPUrbia.com. I definitely agree that AT&T faces a rough future in the residential market, and I don’t see it getting much better with the rollout of their IPTV platform. Having triple play may stem the tide, but, when all is said and done, in two or three years, AT&T will be competing in a DOCSIS 3/fiber market where their competition is offering 10 times the bandwidth and has room to go. Still, AT&T is strong in the business market as a strength, which, while it doesn’t have the sheer number of subs of the residential market, does have much better margins.

  8. Agree with most comments made here… worth sharing another experience.. some of you can try this!

    I am with pacbell for many years.. I was paying $15/month for DSL sometimes back and saw it going to $50/month. WIth premium package and long distance etc., I was paying $100 / month till mid last year. At some point I was trying with Vonage and I called up pacbell and asked to cancel voice line (while keeping DSL). Person on line offered me a deal – upgrade my DSL speed & keep premium phone package as it is and brought down my total bill to $50 (though without long distance) where I was paying $50 just for DSL earlier!!! they were simply waiting for me to call to offer better service at lower price!!

    give it a try!

    five_whys

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    [...] Line losses & Bells’ Race against time [...]

  10. Why Wireless Carriers Like Convergence « Connected Home 2 Go Monday, April 9, 2007

    [...] carriers to offer simple home phone service. This is terrible news for wireline telcos, who, as Om Malik points out, are already seeing disastrous declines in voice revenues. But for wireless carriers, it means new [...]

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