Report: Broadband to Rebound in Q3

A fresh analysis refutes the notion that the U.S. broadband market is reaching saturation levels after several major cable operators and telcos reported declining net subscriber additions in a typically slow second quarter.

In a report issued Monday, Sanford C. Bernstein & Co. Inc. analysts say the subscriber growth of cable- and telco-delivered broadband services will rebound sharply in the third quarter despite some disappointing "seasonality" (e.g., the migration of college students and "snowbirds") witnessed in the previous period.

Broadband net additions from the second quarter of 2006 versus 2007 dipped among several of the larger U.S.-based operators. Cablevision Systems Corp. (NYSE: CVC) saw a 41 percent decrease, followed by Time Warner Cable Inc. (NYSE: TWC) (37.9%); Verizon Communications Inc. (NYSE: VZ) (36.2%); Embarq Corp. (NYSE: EQ) (27.8%); Qwest Communications International Inc. (NYSE: Q) (16.7%); and AT&T Inc. (NYSE: T) (15.7%).

Charter Communications Inc. was an exception, with net adds growing 8.7 percent.

Comcast Corp. (Nasdaq: CMCSA, CMCSK), which had almost flat growth (down 0.9 percent), acknowledged late last month that much of its focus in the second quarter was trained on digital video and the Federal Communications Commission (FCC) ban on integrated security set-tops, which went into effect July 1, 2007. (See Box Deadline Fuels Comcast's Q2.)

Verizon, meanwhile, has been placing more attention on FiOS.

The Bernstein analysts estimate that a weak housing market stripped 100,000 to 200,000 net additions from the overall market in the second quarter, but they added that the "bulk of the deceleration appears to own to increasing seasonality."

By the same token, the firm believes the market will rebound in the third quarter.

"Indeed, normal seasonality patterns at Comcast suggest Q3 is likely to be [one of the] strongest quarter[s] for net broadband additions in the company's history, with a base case forecast of 555,000 subscribers," the report notes. The MSO reported 536,000 net additions in the third quarter of 2006.

Dial-up erosion, a "feeder" for the broadband market, "appears to be continuing at historical or accelerated rates," the analysts add. While Time Warner Inc. (NYSE: TWX) did not disclose AOL Inc. (NYSE: AOL) subs for the first time, and Microsoft Corp. (Nasdaq: MSFT) has not released MSN dial-up subs, trends at EarthLink Inc. (Nasdaq: ELNK) and United Online Inc. "suggest that the dial-up subscribers are showing no greater 'stickiness' than they have in the past."

— Jeff Baumgartner, Site Editor, Cable Digital News

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