Is DSL dead? The two biggest U.S. phone companies, AT&T and Verizon, reported tiny broadband net subscriber additions for Q2. Two possibilities: The U.S. broadband market is getting saturated. Or the telcos are getting hammered by cable giants like Comcast. Or both.
Monday morning, Verizon (VZ) said it signed up just 54,000 net new broadband subscribers last quarter, down from 288,000 a year ago. Last week, AT&T (T) said it signed up 46,000 net new broadband subscribers, down from 400,000 in the previous year.
What’s the deal? Part of the problem, no doubt, is that broadband penetration is reaching a saturation point in the U.S., and that broadband growth rates are going down regardless. U.S. broadband penetration grew an average 22% annually from 2004 through 2007, Goldman Sachs estimates; it projects 5% annual growth through 2011. And a crappy housing market doesn’t help new subscriber additions, either.
But a potentially bigger problem is that many telco customers, hungry for more bandwidth than DSL can deliver, are taking their business elsewhere — to cable competitors like Comcast (CMCSA), Time Warner Cable (TWC), Cablevision (CVC), etc. Goldman estimates that cable took about 70% of the market’s “flowshare” in Q2, up from 53% in Q1.
The good news for the telcos: They’ve had success so far selling faster, fibre-based broadband services, which they’re building out across the country; Verizon, for example, says its loss of 133,000 DSL subscribers last quarter was more than offset by adding 187,000 new FiOS broadband subscribers.
But FiOS isn’t available everywhere yet — nor is AT&T’s version, U-Verse — which means that cable is still the fastest broadband option for most Americans. So in theory, if people find themselves wanting more bandwidth — for Web video, or whatever — they’re more likely to choose their cable company.
We’ll find out if it pans out on Wednesday morning when Comcast posts Q2 earnings — join us for live coverage.
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