Carrier Scorecard: Broadband Blues
Driving a car off of a cliff never seems to work out too well for the driver. Borrowing that logic, we can assume that seeing broadband subscriber growth go off a cliff isn't good for the telecom operator.
But that's precisely what happened in the second quarter of 2008. The three U.S. RBOCs, which had already seen their broadband growth flatten in recent quarters, posted drastically lower broadband subscriber additions when they reported earnings.
Table 1 illustrates how many broadband subscribers each carrier has added in each quarter since the start of last year. As you can see, the most recent quarter, highlighted in red, is drastically lower than what had previously been the trend.
Table 1: Broadband Adds Per Quarter
|Q1 '07||Q2 '07||Q3 '07||Q4 '07||Q1 '08||Q2 '08|
Granted, the second quarter is usually weak for these sorts of things, but what happened this year is far more serious than seasonal shakiness. Combine the drop in broadband adds with the continued acceleration in access line losses (illustrated in the table below), and wireline telephony appears to be in serious trouble.
Table 2: Landline Losses
|Figures represent percentage declines from the same quarter a year earlier. *For the first three quarters of last year, AT&T's figures included new assets acquired in the Bellsouth merger that it did not have in 2006, thus reflecting misleading growth in broadband subscriber data.|
We know what you're thinking: What does this all mean for the North American Carrier Scorecard?
Each quarter, Light Reading publishes scorecards on the world's most influential publicly held carriers, giving each a grade of A through F based on their financial and business performance. Our previous carrier scorecard is right here: Carrier Scorecard: What Recession?.
Getting an A is tough. You need to show strong growth across the board and obvious momentum (the not-off-the-cliff kind) for the future.
Verizon Communications Inc. (NYSE: VZ) gets a grade in the B range because it showed double-digit earnings growth during a troubling economic time. But that was largely due to the success of Verizon Wireless .
In wireline, the situation is far different. We've already covered what's happening in generic broadband, but the situation with FiOS is equally disturbing. Verizon added only 176,000 FiOS TV subscribers in the quarter -- its lowest total since March 2007. Video is supposed to be a big growth driver for the company's future, so it's not good to see its flagship video service losing momentum.
Verizon says the growth slowed because it slowed down its marketing in the second quarter. The company says growth will come back now that FiOS TV is available in New York City, where Verizon's starting a new marketing push. (See Verizon Hits 2M FiOS Subs, Verizon: Labor Strike Won't Affect FiOS, and FiOS in NYC: Verizon's Daunting Task.)
But one of its new marketing ploys is a $69.95-per-month month triple-play package for six months, which will only put further pricing pressure on the market.
Table 3: Verizon's Q2 2008 Scorecard
|FiOS TV Subscribers||1,382,000||515,000||+168.3%|
We sang AT&T Inc. (NYSE: T)'s praises in our last scorecard for having its stock trading near a 52-week high, but Ma Bell's shares have tumbled about 20 percent since the beginning of June.
And really, who can blame investors for being scared? AT&T saw the nastiest drop-off in broadband adds of all three RBOCs. (See table 1, above) As with Verizon, double-digit earnings growth gives AT&T a grade in the B range, but again, that growth is mainly thanks to wireless.
There are some wireline positives. U-verse TV did perform nicely, unlike FiOS, and AT&T remains on track with its goal to have more than 1 million IPTV subscribers by year's end. (See AT&T Hits 550K IPTV Subs.)
Table 4: AT&T's Q2 2008 Scorecard
|U-Verse TV Subscribers||549,000||51,000||+976.5%|
Of the three RBOCs, Qwest Communications International Inc. (NYSE: Q) is actually suffering the least from the broadband epidemic. While it experienced a significant decline in subscriber adds, its drop-off was moderate considering the carrier's size.
But Qwest is showing hardly any signs of near-term revenue growth. Without wireless to bail it out, Qwest had double-digit declines.
CEO Ed Mueller raves about successes with Qwest's DirecTV Group Inc. (NYSE: DTV) partnership and increased data traffic on its network, but nothing has stopped the carrier's continued revenue decline. How much longer can Qwest sustain this?
Table 5: Qwest's Q1 2008 Scorecard
— Raymond McConville, Reporter, Light Reading