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Cable Grabbing 'Gulps' Of New Broadband Subscribers

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The Associated Press

Published: August 10, 2008

NEW YORK - Phone companies have been feeling the heat from cable companies for years, as those traditional TV providers have expanded their own phone services and fought hard for broadband Internet subscribers.

But in the just-ended quarter, that heat appears to have reached the intensity of a blowtorch, with the telephone companies losing out in both voice and broadband service.

"Cable is taking share, and it is taking it in gulps," said telecom analyst Craig Moffett at Sanford Bernstein.

Looking at most of the large cable companies and the largest telephone companies, he calculated that the cable side got 80 percent of new broadband subscribers in the second quarter. Usually, cable's share has been about 50 percent.

This is particularly worrisome for phone companies because for years they have been compensating for a falloff in landline phone subscribers by the addition of broadband. If the cable companies get the broadband business, too, there's not much left to cheer in the fixed-line phone business.

"The telcos' wired businesses suddenly look not only like they are weakening ... they look like they are positively collapsing," Moffett wrote in a research report.

AT&T, the country's largest phone company, added 46,000 broadband subscribers in the quarter that ended June 30, far below the results of recent years. It added 400,000 in the same quarter a year ago.

Verizon Communications, the second-largest telecom company, for the first time reported a decline in the number of customers using DSL broadband over traditional copper phone lines. It lost 133,000 DSL lines. Verizon compensated by adding 187,000 customers to its fiber-optic Fios service, but even that figure was lower than before.

Chief Operating Officer Denny Strigl said attracting new customers was a challenge for DSL, but he added that existing customers were staying or upgrading to Fios. Fios has been at the center of Verizon's investment and marketing strategy for a while, but it's available to less than half of the people in its local-phone service area.

Seeing the same flow of new customers to the cable companies, analyst Ben Piper at Strategy Analytics noted that cable broadband is faster than DSL in most areas, and that the cable companies have done a better job of marketing.

On AT&T's second-quarter earnings conference call, Chief Financial Officer Rick Lindner played down the effect of competition, blaming his company's weak broadband-subscriber figures on the economy.

But the effect of the economy appeared to be much smaller at the largest cable company, Comcast, which added 278,000 broadband subscribers, more than the largest telephone companies combined. It said 67 percent of them had switched from DSL.

The phone companies also continued to lose voice lines, both to cable companies and because some people are just using their cell phones instead. But the losses sped up slightly in the quarter because of the weak economy and because of competition.

AT&T lost 1.56 million phone lines in the quarter, up from 1.35 million in the same quarter a year ago. That's a rate of 10 percent per year. It blamed, in part, the downturn in the real estate market, which has hit hard in some AT&T service areas, such as Florida and the Midwest.

Meanwhile, Comcast added 555,000 voice customers.

Cablevision Systems Corp., which competes with Verizon's Fios in 30 percent of its service area, added 52,000 broadband subscribers, 10 percent more than than a year ago, and 81,000 phone subscribers, up 26 percent.

Of course, Verizon and AT&T have wireless arms that are benefiting from the trend away from landlines. Ultimately, they may get the last laugh in the voice business, said Victor Schnee, president of research group Probe Financial Associates. The move to wireless phones, he said, is really "the cloud hanging over this whole area."

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