7 Comments

Summary:

US telcos are phone companies in name. They have been losing their grip on the voice business. And now they are even starting to lose their traction in the broadband business as well. Q2 will see firstever quarterly decline in broadband subscribers at large telcos.

Let’s just face it — the US telephone companies are phone companies in name-only. They have been losing their grip on the voice business for a long time now, but now it is becoming clearer that the group collectively is starting to lose their traction in the broadband business as well. Instead, it is the cable companies who are cleaning up. Take a look at the numbers so far and what you see is the first ever collective quarterly decline in broadband subscribers at the top three telcos — AT&T, Verizon and Qwest.

From AT&T’s investor report (download PDF):

  1. At the end of the second quarter, AT&T had 16 million total wired broadband connections, up 404,000 over the past year but down 92,000 from first-quarter 2010 levels. Total broadband connections, which include business and consumer wireline subscribers and wireless customers with 3G LaptopConnect cards, decreased by 93,000 in the quarter to reach 17.4 million.
  2. Total consumer revenue connections at the end of the [second] quarter were 44.3 million, compared with 46.3 million at the end of the second quarter of 2009 and 45.0 million at the end of the first quarter of 2010.

Now let’s shift to Verizon. From its second quarter 2010 earnings release:

Broadband connections totaled 9.3 million at the end of the second quarter 2010, a 2.5 percent year-over-year increase. This is a net increase of 28,000 from the first quarter 2010, as the increase in FiOS Internet connections more than offset a decrease in DSL-based High Speed Internet connections.

Now 28,000 net new connections for a company the size of Verizon and AT&T’s decline tells me something isn’t going too well. Sure the operators are desperately trying to get their DSL customers to upgrade to U-verse and FIOS, but those conversions aren’t happening fast enough. Richard Greenfield, who follows the cable companies for BTIG Research in a note earlier this morning to his clients writes:

We estimate loss of 46K (including Q, which is yet to report) - a notable change for the RBOCs in broadband.

Compare this to the cable guys. They just keep ramping up the speeds and keep winning the consumer mindshare. Many view DSL as a laggard technology and are happy switching to cable broadband.  Greenfield further notes:

We expect the top two cable operators (Comcast and Time Warner Cable) to report collective broadband additions of at least 150K, if not more (compared to 398K in Q1 ‘10 and 554K in Q2 ‘09). In addition, we expect positive broadband additions for other major cable operators such as Cablevision, Charter, Cox, Insight and Mediacom, which should lead to an even greater advantage for cable in Q2 2010 versus the RBOCs. Cable’s broadband market share appears to be around 56%, up 100 bps year-over-year, while the RBOCs have fallen to 44% from 45%. We believe cable industry market share could reach 58% by the end of 2011, as share gains are beginning to accelerate.

My quick take: phone companies are too busy chasing the higher margin wireless and wireless broadband revenues that they are leaving their core businesses open to attack.

Related GigaOM Pro Content (sub req’d): Who Will Profit From Broadband Innovation?

Image courtesy of Flickr user Gavin St. Ours

  1. I completely agree that phone companies are focussing too much on the wireless & wireless broadband business. Verizon is barely breaking even on its wireline business in every quarter and the only way they are doing that is by laying off employees. In the wireline side, the corporate accounts are what is driving revenues to stay where they are. The problem is that cable companies are making major inroads into the Small& medium business market and Comcast just launched a “Large Enterprise” business unit.

    I believe that AT&T and VZ will continue to lose wireline market share in consumers, SMEs and even in large enterprises.

    A wholesale provider like Sprint+T-mobile or the new Harbinger 4G network could provide a viable onramp for cable companies to get into the wireless business as well, in-time for 4G and that could create further problems for VZ and AT&T.

    What do you think?

    Share
  2. the high end customers looking for fast connection have been leaving DSL for cable. whats coming next is that the bottom end of the market(those get the cheapest basic DSL lines) will be increasingly switching to mobile broadband solutions as there only connection. especially in single occupant homes and family homes with a single shred computer.

    my take from listening to customers in my small computer shop is that whether it makes sense or not mobile broadband is perceived as a simpler solution without the need to run wires, etc. and if much easier to deal with in case of moving to a new home. even when i have customers using mobile broadband on a desktop and complaining about slow speeds and high bills they are not prepared to go back to wired connections. they tell me instead that they are confident the speed/quality will get better as technology always does and will wait for that.

    Share
    1. Totally agree with this view. I have standard TWC 7Mbps down/384k up (384k..is this 2010?). Were Uverse or Fios options for me, I would gladly subscribe. TWC service is fine, but its product offerings are expensive yet boring, and lack innovation. My DSL option is Windstream — eh, nothing new here either.

      I’m looking to go Clear Wimax with (6Mbps/1Mbps) — though some users here report as high as 10M down/3M up when a reasonable distance form a Clear tower. Its cheaper than TWC and at least seems like its an evolving, innovating platform.

      I know countless people — even different demographics — for whom such a scenario is ideal. My parents… would never give up DirecTv, but would gladly dump TimeWarner high speed if Clear works well. These are people who will never need a FTTH 50Mbps connection, but can see the advantages of mobile broadband for robust home internet.

      Share
      1. @JW you might be able to get both, since TWC is a reseller partner of Clearwire’s and has started selling the WiMAX service in a bundle under their own brand name.

        Overall, cable home service + cable VoIP + WiMAX/3G wireless seems like a pretty good bundle package to battle the “telcos.”

        Share
  3. Bob in Peoria Sunday, July 25, 2010

    1) Om, you nailed the main point :
    “My quick take: phone companies are too busy chasing the higher margin wireless and wireless broadband revenues that they are leaving their core businesses open to attack. “

    BUT, would like to add:

    2) ST and Tom also added major points on telcos losing to wireless and cable. Know many going to cable(where possible) and wireless(in rural areas). I live in an Illinois metro area with 375K population, with Multinational Fortune 50 HQ. Closest AT&T U-Verse is 75 miles away, closest FiOS is 250 miles away. Only Verizon FiOS in Midwest is/was Fort Wayne, Indiana.

    3) Best fiber FTTH hope near here are small, independent telcos. Know of 2 that are starting own fiber installs, seeing how it goes. Suggest you research why small rural telcos are installing fiber, while the big boys can’t(or won’t) install fiber in rural US.

    Share
  4. In urban environments, scrappy independent outfits like Web-Pass or Unwired here in the Bay Area offer far more compelling broadband service than the Tweedledum-Tweedledee telco-cellco duopoly.

    They user newer apartment buildings’ Cat 3 telephone cabling to deliver 100Mbps Fast Ethernet service, and use microwave links to provide backhaul.

    I pay $45/month for 45Mbps connectivity in downtown SF, with no bandwidth caps, network neutrality or traffic shaping shenanigans, and am free to run servers as I see fit. Why on Earth would I switch back to craptastic AT&T DSL or crippled Comcast DOCSIS?

    Share
  5. [...] So if the U.S. wants more folks to get broadband (and the president and the FCC do), prices will need to drop for the access and the equipment, disinterested parties will have to find a reason to subscribe, and the government or ISPs will have to expand broadband to the rest of the country. The data also underscores how telcos are losing broadband subscribers to cable companies, as Om pointed out two weeks ago. [...]

    Share

Comments have been disabled for this post