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.
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