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The State of Broadband, Q4 Analysis

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The health of the broadband nation can easily be measured by the growth of the big four broadband service providers – Verizon, Comcast, AT&T and Time Warner. (The Big 4 account for 70% of the total US broadband subscribers.) Every quarter we look at how these four and other broadband service providers do, by trying to make sense of the results they report.

The fourth quarter 2006, while showing some considerable growth, is indicating that the law of large numbers is catching up with the business. Another key takeaway is that slow doesn’t really sell that well. And lastly, the triple play is beginning to turn the game in favor of cable guys.

John Hodulik, our favorite telecoms analyst over at UBS, sent us his report this morning which reveals that broadband services subscriber growth in the fourth quarter declined to 26% from 28% in the second and third quarters of 2006. The household penetration has hit about 46%, up “about 9 percentage points of penetration over year-end 2005 numbers and slightly better than the 8 points of penetration added in 2005.”

The business added about 10 million new subscribers in 2006 versus 9.5 million in 2005 and 7.4 million in 2004. John estimates that another 10 million new subscribers will come online in 2007. We hate to disagree with a man this smart, and he has been right more often than wrong, but there seems to be a nagging feeling that he is being too optimisitic. Thankfully, his estimates are a tad more realistic when compared to the 70 million total estimated by Pike & Fischer.

Nevertheless, the curve is flattening, and things are getting downright dismal in DSL land:

* DSL subscribers grew about 29% vs. growth of 33% in 3Q and 37% growth in Q2. The DSL providers are capturing less of the new signees.
* DSL providers’ net adds fell 13% annually based on our estimates versus a 7% decline in Q3.
* Cable modem subscriber growth has held steady at roughly 22% for the past two quarters.
* AT&T (w/BLS) and Verizon alone saw net adds decline 22% annually.

Why is this happening? Simple explaination: Cable companies are offering triple play packages that consumers seem to want. Comcast’s phone revenues provide ample evidence. A few days ago, I wrote about why the access line losses are a “crisis” for the phone companies which are using Unity and Freedom as a way to stop the bleeding.

3 Responses to “The State of Broadband, Q4 Analysis”

  1. Om.

    It appears the cablecos have been much more responsive to consumer demands for bundled services and the need for speed.

    Nonetheless, the broadband wars are bound to heat up. While FiOS and similar services are getting lots of headlines, DSL and cable modems continue to dominate in terms of footprint. Until this changes, I would expect that the cableco’s will have the edge.