And Broadband Goes Slo-Mo

[qi:051] U.S. broadband subscriber growth, which had been rising at a blistering pace for nearly 12 quarters, started to slow down in the three-month period that ended in June. This is a problem not just for the larger broadband service providers, but for smaller players like Embarq (EQ) and CenturyTel (CTL) who are also experiencing the pain of price wars.

The country’s nineteen largest cable and telephone providers added more than 1.7 million net high-speed Internet subscribers in the most recent quarter, according to Leichtman Research Group (LRG). These companies cover about 94% of the market. LRG estimates that there are now 58 million U.S. broadband subscribers; 31.5 million for cable and 26.4 million subscribers for the phone companies. [digg=http://digg.com/tech_news/And_Broadband_Goes_Slo_Mo]

That’s 400,000 fewer than the second quarter of 2006 and, according to LRG, it’s the lowest number of U.S. broadband subscribers since the second quarter of 2004. Phone companies added about 925,000 subscribers, representing 54% of the net broadband additions for the quarter. The slowdown has impacted pretty much all ISPs, across the board.

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During a recent conference call with Embarq executives, Christopher Larsen of Credit Suisse asked them discuss their second-quarter numbers, asking them if the slowdown was localized to AT&T (T) and Comcast (CMCSA.) Daniel R. Hesse, CEO and Chairman of Embarq replied:

….market is beginning to get more competitive largely because what we are seeing is the cable companies for a long time have had kind of one-size-fits-all approach for their price piece net offer and now they are beginning to offer lower speeds like sub 1.5 and 1.5 megabit kinds of speeds that are lower price points.

In other words, a price war is looming, especially at the low end of the market.

…we are seeing some increased competition in the high-speed Internet business and saying cable companies increase their speeds on the high-end a bit. Mostly the same prices they are charging, or we are charging before. How they have steered their service and are going after dial conversion customers with $20 price points for 1.5 service. And so we are seeing an increase in competition in high-speed Internet.

Glen F. Post III, chairman and CEO of CenturyTel, pretty much alluded to the same on his conference call.

On the broadband side, there is more competition… primarily it’s coming from the triple play as the… of course the cable companies roll out their voice-over-IP. So it’s obviously more to competition. We don’t think we will see an acceleration in our adds. We don’t expect major declines for the rest of the year with our broadband adds as well.

It is clear – this slowdown is going to create some interesting situations, possibly an all out price war, which is not such a bad thing for the broadband subscribers.

More thoughts on this later in the week.