According to their research, cable companies have about 47.5 million broadband subscribers, while the remainder are with the phone companies. Cable companies added about 800,000 new subscribers, about 72 percent of the total for the month. The top two phone companies — AT&T and Verizon — saw a decline of 696,000 DSL accounts but added a total of 919,000 fiber subscribers. FIber-based broadband now accounts for about 40 percent of AT&T and Verizon’s total broadband customer base.

Bruce Leichtman, president and principal analyst for Leichtman Research Group, pointed out that typically the first quarter is better than the second and third quarters of the year, and “2013 began with another strong first quarter.” Net broadband additions in Q1 2013 were about 500,000 more than in Q4 2012, and that bodes well for rest of the year.

A resurgent housing market and stronger economy along with our growing need for speed and connectivity are the reasons why demand for U.S. broadband is booming. Here are some numbers to give you an idea as to who is winning and who is losing.

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But that shouldn’t have much of an effect on the money Time Warner Cable is about to make. According to UBS Research estimates, Time Warner Cable will bring in an additional $360 million to $370 million in annual revenues for next few years, thanks to these new cable modem fees. UBS thinks TWC will make about $3-per-subscriber-per-month in incremental data ARPU (average revenue per subscriber). The research group notes:

The new fee drops straight to the EBITDA line, boosting margins by ~50-60 bps from 2013-15E. Our model reflects this, with EBITDA growth of 7.6% in 2013E to $8.53B (prev. $8.29B) vs. prior expectations for mid-single digits. Given TWC’s 3.25x leverage target, the ~$360M in extra EBITDA should enable TWC to boost the buyback by ~$1.2B. We model repurchases of ~8.5% of the market cap in ’12/’13 but leverage of ~3x at YE13 and YE14 suggests more room.

With the buyback as a possibility, it is hardly a surprise that Wall Street loves this move. The stock in the company surged past $100-a-share since the news first emerged earlier this month. It is currently trading at around $99 a share.

And while it is good news for Wall Street, the news can hardly be described as good for the consumers who are footing the bill for the modems. Unfortunately consumers can’t do much: They have two options, either buy the modem outright or switch to another provider.

Your own modem? Not so fast

You can buy a modem for between $50 to $150 — and perhaps you should, but what follows is a nightmare in itself.  Fox News in a piece noted:

There is a way to beat the fee — but Time Warner is making it as difficult as possible. Customers can purchase an “approved” cable modem….There are only five approved Motorola models listed on the Time Warner site …Time Warner doesn’t make it easy to switch, however. To begin with, the company doesn’t sell modems directly to subscribers, so a trip to your local Best Buy is the first step. Then customers must call in to Time Warner to switch modems — my initial service call without any hitches or having to wait long was roughly 45 minutes.

The first time you call, all the cable company does is enter the request to change the modem. It takes another four to five days to provision (or configure) the line. This kind of manual provisioning is a throwback to the pre-Web era of ISDN lines. So after first installing the new modem to alert the cable company, one then has to uninstall it; reinstall the old modem and wait. (My service rep called back in three and a half days.)

In other words, Time Warner will make it as tough as possible for you to get you modem.

Competition? What Competition.

And switching to another provider is not much of an option — Verizon (sVZ) is one of Time Warner Cable’s main competitors and it has been quietly jettisoning the DSL business, while putting spending on its FiOS broadband network on the back burner. AT&T too has been focusing its attentions away from slower DSL to its higher-priced services, which too are available selectively. Both Comcast and AT&T serve much larger footprints compared to Time Warner Cable and Verizon.

There is not much competition, and that is why Time Warner Cable can charge a modem fee and get away with it. Time Warner Cable isn’t the first one to do so — Comcast too charges outrageous modem fees — about $7 a month. If the Comcast and Verizon relationship got any cozier, it would become R-rated.

Charging for modems is yet another example of how the U.S. Federal Communications Commission — whose ultimate task is to work for the citizens of the country — has failed to watch out for the interests of the people. If we had more competition in the marketplace — and we don’t — the broadband providers wouldn’t think about it. But as long as we have an FCC which is blind and deaf to competition, Time Warner Cable and their peers don’t have to worry about anything.

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Broadband observers should be delighted to note that the U.S. saw a 76 percent year-over-year growth in the number of connections at high broadband levels — speeds greater than 10 Mbps during the quarter. It is not surprising as many U.S. customers are leaving slower DSL connections and are switching to cable or other higher-speed options such as fiber networks.

Some key findings from the report:

• The global average connection speed increased 13 percent to 3.0 Mbps from the first to second quarters of 2012, continuing a trend of strong growth.
• South Korea continued to have the highest average connection speed at 14.2 Mbps for the quarter.
• Japan was second at 10.7 Mbps and Hong Kong was third at 8.9 Mbps.
• Among top countries ranked by average measured connection speed, Japan experienced largest year-over-year percentage growth (21 percent)
• Year-over-year trends remained generally positive, with global average connection speeds increasing by 15 percent, including growth in seven out of the top 10 countries.
• The global average peak connection speed grew 44 percent year over year, including increases of 10 percent or more across all of the top 10 countries.
• The global average peak connection speed one again showed strong improvement, growing 19 percent in the second quarter to 16.1 Mbps.
• Worldwide, 126 countries saw increases, six of which grew in excess of 100 percent between the second quarters of 2011 and 2012.  In contrast, only eight countries saw year-over-year declines.

However, it wasn’t all good news:

• The global high broadband adoption rate declined slightly in the second quarter, losing 1.6 percent.
• Seven of the top 10 countries also had negative quarter-over-quarter changes, with wildly varying magnitudes of change, ranging from a trivial loss of just 0.6 percent in Latvia (to 26 percent) to a much more concerning decline of 24 percent, seen in both the Netherlands and Belgium (to 17 percent and 14 percent respectively).
• After moving up in the first quarter of 2012, the global broadband adoption level saw a minor decrease in the second quarter, losing 2.8 percent and declining to 39 percent.

However, U.S. broadband had a great summer:

• Nine of the top 10 states saw positive quarter-over-quarter changes in average connection speeds, with the largest increase seen in Delaware.
• Top 10 states saw average connection speeds increase on a year-on-year basis.
• With 41.6 Mbps, Delaware had the highest average peak connection speed.
• A total of 37 states and the District of Columbia saw their high broadband (higher than 10 Mbps) adoption levels increase quarter-over-quarter.

In this edition of SOTI, Akamai is introducing a new Mobile Connectivity that includes mobile browser data from Akamai IO for the month of June 2012.

• The volume of mobile data traffic doubled from the second quarter of 2011 to the second quarter of 2012, and grew 14% between the first and second quarter of 2012.
• The fastest mobile average connection speed in the second quarter of 2012 was 7.5 Mbps, delivered by a mobile provider in Russia.
• A UK The fastest mobile average peak connection speed for the quarter came from a provider in the U.K. at 44.4 Mbps.
• Mobile browser data from Akamai IO for the month of June shows approximately 38 percent of requests on cellular networks came from Android Webkit.  Some 33 percent came from Mobile Safari; and about 4 percent from Blackberry.
• However, add Wi-Fi, the numbers shift in favor of Mobile Safari, which accounted for an average of approximately 60 percent of requests.  Android Webkit represented about 23 percent. Of course, it shouldn’t surprise since many folks own iPod Touches and iPads that use Wi-Fi for connectivity.

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“While higher-income households remain most likely to subscribe to a broadband service, computers in the home also increases with household income,” said Bruce Leichtman, president and principal analyst for Leichtman Research Group, Inc. “Disparities in computer ownership are the true roots of the broadband divides in the US.”

Here are some other findings from that study (via the LRG press release.)

• While 76 percent with broadband don’t know the speed of their Internet connection, 63 percent of broadband subscribers rate the speed of their Internet connection as falling between an eight and 10 (higher is better), and 6 percent rate it poorly at between one and three.
• Two percent of all online households say that broadband is not available in their area – compared to 6 percent in 2008
• Overall, 1.3 percent of all households are interested in getting broadband, but say that it is not available in their area.
• Overall, 0.6 percent of all households are interested in getting broadband, but cite cost as a reason for not currently subscribing to a broadband service.

The high broadband penetration in homes with computers explains why we are seeing slower growth in demand for new broadband connections. At the end of second quarter of 2012, there were a total of 80.33 million broadband subscribes in the U.S. according to LRG.

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As we have previously reported – the decline of traditional DSL has created problems for phone companies, who are losing customers to cable broadband providers. Here are some other insights from the data they collected.

• Top cable companies added about 330,000 subscribers. In the second quarter of 2011, they had added 271,000 new subscribers.
• The top telephone companies lost about 70,000 subscribers versus a gain of about 80,000 in 2Q 2011. AT&T and Verizon had fewer net broadband adds in Q2 2012 than in any previous quarter in the past eleven years
• AT&T and Verizon added 669,000 fiber subscribers in the quarter (via U-verse and FiOS) and had a net loss of 763,000 DSL subscribers.
• Comcast now has 18.74 million broadband subscribers, making it the biggest broadband provider in the US.

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Underground photo courtesy of Annie Mole via Flickr under Creative Commons

The United Kingdom, one of the laggards in Europe when it comes to superfast broadband, has finally passed the two million subscription mark or roughly 10 percent of the UK’s fixed lines, according to broadband research firm, Point Topic. Their data shows that UK superfast broadband has downstream bandwidth of over 25Mbps. [What speed you actually get at home is a whole different thing, but that's a story for another day.]

Cable broadband along with Copper/Fiber hybrid broadband technologies are taking market share away from the plain old DSL, a trend that has gained momentum in US over the past few years. Of the total 21.3 million fixed broadband lines, there are 16.3 million that use old broadband technologies. The UK during the “first half of 2012 saw the tipping point where DSL, for the first time, started to lose subscribers overall,” Point Topic notes.

During the second quarter of 2012, The UK added a mere 175,000 new subscribers. However, more than 600,000 new superfast subscribers signed up. Virgin Media and BT are two of the biggest “superfast” broadband service providers in the country. Europe wants to go all “superfast” by 2020. Countries like the Netherlands, Sweden and many emerging European economies such as Estonia are far ahead of the UK in terms of superfast broadband offerings and penetration, though the UK government wants to offer best broadband in Europe by 2015.

The Essentials tier, which is opt-in only, entitles customers that use less than 5 Gigabytes of data per month to get a $5 off TWC’s monthly prices. If the broadband users go over the 5 GB limit, then they shell out $1 per gigabyte with a maximum of $25 in surcharges.

The Multichannel News adds:

According Time Warner Cable, Texas customers can switch between metered and unlimited plans as often as they like. Essentials Broadband users will have access to an online meter that displays usage on a monthly, weekly, daily or hourly basis.

Customers will have a 60-day grace period (two billing cycles) to adjust usage patterns, during which the MSO will notify customers of overages but won’t charge for them. Time Warner Cable provides a data-usage tracker at My Services so customers can gauge their monthly consumption.

TWC “essentials” was first introduced in February in locations such as San Antonio, Laredo, Corpus Christi, and the Rio Grande Valley and the service has now been extended to other cities such as Austin, Dallas and El Paso. TWC was experimenting with usage-based pricing models in 2009 and back-tracked after a public outcry. The company has taken slow and measured steps to roll out usage-based pricing in dribs-and-drabs.

We’re not exactly a fan of the current plan, as Stacey wrote in February:

I find the plan somewhat disturbing, given Time Warner Cable’s history attempting to implement tiered pricing back in 2009, but also because Time Warner is creating artificial constraints on people who may then be reluctant to pay more for Internet access. Plus, those giving up on unlimited access aren’t getting very much of a discount — I look at it as like selling your car in exchange for a discount on bus fare. I also think that as we’re encouraging ways to help poor people online via programs such as Comcast’s Internet Essentials program (even though the broadband these programs offer is not my definition of broadband), this helps set a precedent that unlimited or fast broadband is a luxury or an indulgence.

Of course, now that Time Warner Cable’s major competitor AT&T has shifted to a usage-based pricing model for its broadband customers, TWC can be a lot more brazen. Other ISPs in the state are also going to a usage-based pricing model.

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The tests were conducted on a real cable plant at a school in the city of Schwerin, Germany using currently available standards, technology and hardware. Schwerin’s cable plant was recently upgraded by KD to 862 MHz and the test was performed using channel bonding of 48 8MHz channels. Each (European standard) 8 MHz channel can accommodate 50 Mbps.

Of course, in a real-life setting some of these channels would also have to be allocated for upstream capacity, so real-world speeds wouldn’t look like this. But for delivering more and more content to homes, cable is still in the game. From the release:

“Our field test with ARRIS, with an aggregate download capacity of well over 4Gbit/s, was a complete success and underlines the unique selling proposition of our cable network as the only extensive ultra-fast network in the German broadband market,” said KD Chief Technology Officer Lorenz Glatz. “Using this technology, a feature length movie could theoretically be downloaded in 8 seconds – at speeds faster than a standard laptop or modem can even process – demonstrating that today’s broadband cable network is already a high performance and sustainable infrastructure offering huge untapped potential.”

These speeds will not only help cable market crazy-high speeds such as the recently announced 300 Mbps tier Verizon is offering in the U.S., but will also ensures that cable providers have the capacity to deploy true IP television to customers. Currently many cable providers dedicate a set chunk of their frequencies to a set channel, so ESPN is always there and taking up space on the cable plant’s gear. But in an IPTV scenario, people would call on ESPN only when they wanted to watch it, freeing up those frequencies when no one wanted to watch ESPN.

Cable is a shared network, and these are just trials, so end users shouldn’t expect multi-gigabit connections anytime soon. But it’s nice to see that we can’t count cable out yet.

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Comcast and other cable companies are getting a big share of data dollars mostly because they are offering higher speed packages. In comparison to the cable companies, phones companies are seeing their slower DSL business whither away. In the first quarter of 2012, AT&T lost about 616,000 broadband customers while Verizon added 103,000 customers.

In comparison to broadband, during the first quarter of 2012, Comcast lost 37,000 video customers during the first three months of 2012, and added 164,000 voice customers. It now has 22.3 million video customers and 9.51 million voice customers.

In the first quarter, combined Video, High-Speed Internet and Voice customers increased by 565,000, driven by High-Speed Internet customer net additions, up 5% over the prior year. As of March 31, 2012, Video, High-Speed Internet and Voice customers totaled 50.4 million, an increase of 2.8% over last year’s first quarter. [Comcast Press Release]

On December 31, 2011, video, high-speed internet and voice customers totaled 49.8 million, an increase of 3.0% over the prior year, Comcast said.

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How does this stack up against total net additions during 2010? Not that well. During 2010, the 19 top companies accounting for 93 percent of the market added about 3.4 million to end the year at 75.1 million subscribers.

Of the 3 million net new additions, nearly 2.3 million of the  subscriptions going to cable companies. The phone companies in comparison added 750,000 broadband subscribers. In the fourth quarter of 2011, cable and telephone providers added 765,000 subscribers, with cable companies adding nearly 82 percent of the new connections.

The reason phone companies are falling behind is because both AT&T and Verizon are focusing all their resources on wireless broadband, an area where they can safely skirt the network neutrality limitations. They are also able to make a lot more money from the mobile data customers. AT&T added 117,000 new customers while Verizon added 278,000 during 2011. In 2010, these two companies added 521,000 and 232,000 broadband subscribers respectively. The top telephone providers added 1.1 million broadband subscribers in 2010.

Comcast is the largest broadband provider in the US with over 18.15 million subscribers while AT&T has 16.43 million subscribers. Time Warner Cable comes next with 10.344 million subscribers., followed by Verizon with 8.67 million and Centurylink with 5.6 million subscribers.

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