RBOCs Excel With DSL

For those of you pondering the future of the broadband market, analysts at Credit Suisse First Boston Corp. have a message: The RBOCs are coming.

In an end-of-the-quarter report issued Wednesday, the Credit Suisse analysts estimated that the Bells posted a collective 30 percent increase in line additions compared with third-quarter 2004 figures.

“Based on actual DSL results and our estimates for cable broadband net adds,” the analysts wrote, “we believe that the share shift from cable to DSL in the third-quarter 2005 was greater than we had estimated.”

Broadband market share increased to 38 percent by the end of September, up from 30 percent in the year-ago quarter. But even though broadband continues to pull customers away from dialup -- the traditional cornerstone of telecom Internet services -- cable companies are losing ground.

One year ago, cable held a commanding 61 percent of the high-speed wireline market, but that has shrunk to 58 percent this year, according to the analysts’ report. By 2010, when broadband penetration reaches 67 percent, the cable companies’ share is expected to slip even further, down to 52 percent.

Table 1: Broadband Market Share Estimates
Year 2005 2010
Cable 57.30% 51.90%
DSL 42.70% 48.10%
Source: Credit Suisse First Boston Corp.

“We believe that DSL will continue to take more than half of industry net adds due to lower price points,” the analysts wrote.

When it comes to net DSL additions, the Bells came out swinging.

Leading the RBOC charge was SBC Communications Inc. (NYSE: SBC), which reported third-quarter DSL line additions of 528,000, the company’s biggest quarterly increase ever. (See SBC on Lightspeed: Full Fiber Ahead.) SBC ended September 2005 with an RBOC-leading 6.5 million DSL lines in service and announced plans to pass 2 million homes with its fiber-to-the-node deployment, Project Lightspeed, by the end of the year.

Verizon Communications Inc. (NYSE: VZ) reported adding 389,000 new broadband connections this quarter, including gains in both DSL and FiOS, its fiber-to-the-premises venture. (See Verizon Connects for Big Q3.)

BellSouth Corp. (NYSE: BLS) added 205,000 net new DSL subscribers, bringing its total to 2.7 million. (See BellSouth Boosted by Broadband, Cingular.) And even Sprint Corp. (NYSE: FON), though not in the RBOC set, reported 48,000 new lines.

On top of impressive phone company gains, Credit Suisse analysts estimated that cable broadband additions declined by 264,000 compared with the year-ago quarter, most of these losses coming at the high end of the market, where cable penetration has been strongest.

“We believe that acceleration in DSL net adds is being driven by faster migration of dial-up subscribers to broadband as a result of more aggressive pricing from RBOCs,” the analysts wrote.

So the cable market share is shrinking, hit hardest by discount pricing strategies from Verizon and SBC, both of which have offerings at $15 price points. The analysts also cited marketing strategies as key reasons for the shift, as companies develop new offerings to combine video, voice, and Internet data services.

But the cable guys can fight back by offering cheap voice connections on top of all the other services available. “By pricing voice at a significant discount to the RBOCs ($30 or under) and marketing it effectively, MSOs can equalize the price differential in broadband and prevent a major share shift from occurring,” the analysts wrote.

— Joe Tuzzo, special to Light Reading

Richard Hatch 12/5/2012 | 2:55:14 AM
re: RBOCs Excel With DSL Should want to expand DSL as a "save the monopoly" strategy...as DSL subs are more likely to keep their old phone lines rather than go all-wireless or cable route. Once they're gone, getting them back for any IPTV initiative is not gonna happen without a big price discount incentive.

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