Verizon and Yahoo announced an extension of their portal relationship. The Verizon-Yahoo! co-branded portal is made available to Verizon high speed Internet users and offers a variety of Yahoo powered Internet tools and applications. The portal will offer Yahoo! Search, and co-branded e-mail, Instant Messenger and Toolbar applications. “Yahoo! also will provide search and display advertising on the co-branded portal and e-mail application, and both companies will share the search, advertising and e-commerce revenues generated by users of the co-branded portal,” said Verizon in a company statement. The partnership began in 2005, and this is a "multi year" extension.

Portals have long been used by broadband service providers to add additional value to their service, and hopefully generate a little additional revenue as well. As broadband empowers more utility and multimedia applications, broadband service providers are looking for ways to empower their customers to take advantage. It’s one minor step away from the “dumb pipe” argument, where carriers look to add value to their broadband service and not just provide straight connectivity.

Verizon recently launched a new DSL promotion offering six months of free service for customers who bundle phone service. The phone and DSL package is being offered for $45/month. Verizon joins AT&T, who also recently launched a DSL promotion, offering a “no contract” term for DSL pricing, which locks their pricing in for two years. Both promos are believed to be, at least in part, a response to the dismal 2Q08 results for DSL net adds. The Wall Street Journal takes it a step further, and suggests a broadband price war may be in the making. But the article is quick to point out that it is a one sided war for now. Cable companies have yet to respond, and feel less need to do so. Even though broadband adoption is slowing, cable companies are taking the lion's share of new customers. There’s less pressure on them to join this “price war.”

The third quarter will be an interesting one to watch. Logic says that these bad economic times, which seem to be cresting in this current quarter, should drive more potential broadband customers to less expensive DSL options. But that didn’t happen in 2Q08. In fact, some cable companies, Comcast included, noted their best broadband take rates occurred with their premium, and more expensive, cable modem tiers. Will that change in 3Q08? Perhaps. It seems like the bad economic news is really piling on these days, which may push people to more “value” priced DSL options. If it doesn’t, and cable repeats its 2Q08 “slam dunk” performance against DSL in the current quarter, telco service providers may be in real trouble.

In the past couple weeks, there’s been a lot of discussion and debate about which telco strategy will win – Verizon’s FTTH play with FiOS, or AT&T’s FTTN strategy with U-verse. Lost in that debate was this country’s third largest telco, Qwest, who also yields significant influence over the telecom landscape. Qwest is following a similar strategy to AT&T, with one major difference. They are not pursuing an IPTV strategy, and are instead (at least for the time being) leveraging a DirecTV partnership for the video portion of their triple play. Qwest CTO Pieter Poll gave an interview to ZDNet’s Between the Lines blog and offered Qwest’s view of the broadband landscape. Here are some interesting takes from the interview:

• For the time being, Qwest is content with a FTTN strategy, utilizing VDSL2 to the home, and delivering a top end speed of 30-35 Mbps
• Poll is not concerned with DOCSIS 3.0, commenting that the 100 Mbps speeds that are associated with it are “a marketing game,” and will not be the reality in the marketplace
• FTTH is simply unrealistic for Qwest because of the cost associated with retro fitting their extensive buried plant assets – a challenge that Verizon does not face with its extensive aerial plant
• Qwest is moving forward with application development and intends to offer their “Q Home” application platform that will among other things, integrate phone service with instant messaging, email, and click-to-call type services

Qwest has taken their fair share of criticism for appearing to be somewhat slower to move into the future than their other “bell” brethren. They’ve punted on IPTV and have no wireless assets of their own, leading to speculation that they will face long term consequences for not being more aggressive with their strategies. But love them or hate them, at least you know where they stand. They’ve decided to follow a different strategy, and are not ashamed to talk about it. All these predictions of winners and losers are somewhat pointless right now. We’re way too early in the broadband game to figure out who wins. Anyone dismissing one strategy over the other is simply speculating. Qwest’s strategy adds some diversity to the mix. They’ll all be worth observing.

There’s no denying that DSL sales took a beating last quarter. AT&T might be trying to do something about it. They announced a new promotion that locks in DSL pricing for two years without the need for signing a contract. They’re also taking direct aim at cable companies, who’ve been known to promote a term contract or two, albeit less so lately. In a company statement, AT&T says the new pricing promotion offers “a guaranteed monthly rate for two years without the hassle of a term commitment like those of cable companies.” The guaranteed monthly pricing applies to residential AT&T High Speed Internet products, including the company's standalone and AT&T U-verse DSL packages, although some of their lower tier DSL packages don’t qualify.

At first glance, you kind of walk away somewhat unimpressed with this promotion. You can’t knock AT&T for offering promotions of any kind. But if the objective of this campaign is to significantly boost new DSL additions, I’m not sure this will be enough. I’m hoping AT&T is doing some market research to find out exactly why new broadband purchasers have been more likely to choose cable modem over DSL lately (by the way AT&T and others, our sister company, Pivot Group, is happy to oblige if said consumer research services are needed). Maybe some research revealed this issue to be a flashpoint. But it seems to me, more tangible issues also need to be addressed, including better throughput speeds (in both directions) and other value added applications. Giving free access to AT&T’s Wi-Fi network is a great start.

Recent discussion about cable companies beating telcos with new broadband additions has reignited the debate of FTTH and justifying its expense. One argument suggests that cable companies appear to be winning the current broadband battle because their network is superior to a telco’s copper and DSL based network. FTTH would level the playing field, the argument suggests. There is some evidence to support this theory. When you look at Verizon, they did see a big drop in DSL adds last quarter – but they also added new FiOS broadband customers at a much faster rate than DSL customers. But at what cost? In a recent New York Times article, Craig Moffett, an analyst with Sanford C. Bernstein is quoted as saying “… that Verizon would be $6 billion in the hole [as a result of FiOS] when all was said and done.” The New York Times article examines both Verizon’s and AT&T’s strategy for meeting the cable competitive challenge. It’s illustrative of an ongoing debate faced by telcos – should I “bite the bullet” and go with FTTH now, or should I try to extend the life of my copper plant investment for as long as possible. Both sides of the argument have merit.

The extending copper plant argument suggests that you should not strand too much investment in a new wireline network like FTTH, when the technology environment is changing so rapidly. Among other ongoing developments, there is no denying the momentous shift towards wireless for both voice and data. So there is some concern that plowing all this investment into FTTH may not pay off. The New York Times quotes AT&T CTO John Donovan as saying, “The last thing we want to do is overdeploy fixed capacity into the ground where there is no recovery for being wrong by putting in too much.” You certainly can’t disagree with the premise. Of course there is always a flip side to every argument. The competitive race is going on right now. The last thing any telco can do is stand still. FTTH proponents will argue, indecision will just allow cable competitors to pick you off, using a robust triple play bundle, powered by their “superior” network. So while you may not have “over invested” in a FTTH network, you also may not have a stable enough customer base to continue as a going concern over the long term.

What gets lost in this argument, especially when put into the context of Verizon and AT&T, is the impact of wireless. AT&T and Verizon can both afford to somewhat gamble with their wireline network of the future choice. The reality is, both of these companies are now really wireless companies, with wireline assets. Wireline derived revenue is increasingly becoming a minority of their revenue generation. If either of them mis-steps with their wireline strategy, they can afford to adjust accordingly. Other telcos who do not have that luxury are much more at risk with this decision. If you don’t have wireless, then your future obviously rides with broadband. Becoming the best at offering broadband in your given market should be the aim. Deciding on which route to take to achieve that objective will depend on a variety of factors. Factors like consumer preferences, competitor capabilities (present and future), technology innovation implications, and market demographics and firmographics, to name a few. Telcos need a comprehensive understanding of all of these factors before deciding which direction to take. Once these issues are understood, decisions about pulling the trigger on FTTH now, later, or never are much easier to make.

We keep seeing snippets of the future of entertainment. Verizon announced one, with their NFL Network Game Extra service, now being provided to Verizon video and wireline broadband subscribers. Viewers of the service are given a “virtual control booth” enabling them to watch live, online broadcasts of NFL Network preseason and Thursday Night Football games while selecting from multiple camera feeds. Subscribers will have access to alternate camera angles and live audio feeds and have the ability to view one of four camera angles on demand, or all four angles simultaneously. Other features include:

• live online chats with other NFL Network Game Extra viewers during the live games
• game statistics, highlights and drive-chart simulations during the games
• on-demand video highlights of the games
• special events, such as college bowl games and college all-star games including the Insight Bowl, Texas Bowl and Senior Bowl

Unfortunately, the service is limited to the pre-season and is only viewable on-line through their broadband connection. The optimist in me hopes it’s a start of what will eventually become standard television viewing. I remember first learning about IPTV back in the late 90’s, and the idea of viewers being able to control multiple camera angles of sporting events was always cited as a forthcoming feature that will offer competitive differentiation. While this Verizon illustration isn’t quite that vision yet, it appears to be heading that way. I recognize that this vision is not unique to IPTV. Verizon isn’t a true IPTV player to begin with, and DirecTV has been experimenting with similar features for some time. But it is illustrative of the potential of entertainment and broadband convergence features. Features that all video and multi-play service providers will need to understand and leverage to the best of their ability.

Verizon is targeting returning college students in their Potomac region with a broadband promotion. The promotion’s tagline is, “Headed to College Soon? Don't Forget to Pack the High Speed Internet.” The plan offers three tiers of broadband with download speeds of 768K, 3 Mbps, and 7 Mbps for $26.99, $31.99, and $42.99 respectively. The plans offer 9 month terms to coincide with the school year.

We’ve been talking about the slowdown in broadband for a couple weeks. We now have somewhat of a confirmation, thanks to Leichtman Research Group (LRG). “Net broadband additions in the quarter were the fewest of any quarter in the seven years LRG has been tracking the industry,” said Bruce Leichtman, president and principal analyst for LRG. According to Leichtman, among the large broadband service providers, broadband additions in 2Q 2008 amounted to 51% of those in 2Q 2007 – with cable having 85% as many additions as a year ago, and telcos 23%.

The slowdown should be of particular interest to wireline telcos. If this finding becomes a trend, and broadband’s best growth days are behind us, than wireline telcos have their work cut out for them. Because the best days for access line loss are definitely ahead of us. Broadband is seen as a potential replacement for traditional access lines, both in line counts and revenue. The thought being, if I continue to lose access lines, I can replace that revenue with broadband and all the applications that broadband delivers. But if growing my broadband base becomes more and more difficult, particularly because my cable and wireless competitors are stumping my growth, my challenges will only intensify. I’m the first to admit that there is a lot of generalization going on with this analysis. There certainly are telcos who are not experiencing a slowdown. It’s very market specific. But national trends like this are worth noting. It helps to keep us honest and grounded.

Recent quarterly reports from the likes of AT&T and Verizon paint an ugly picture for DSL. AT&T’s DSL growth rate slowed significantly last quarter, adding only 47K net new subscribers. Verizon fared much worse, losing 133K DSL subs. It’s true that Verizon’s marketing attention is FiOS right now, which certainly contributes to their DSL losses, but are those losses a reason for concern? Maybe. In their last quarterly report (1Q08), Comcast reported that 66% of their new cable modem customers defected from DSL. On the surface, one could argue that DSL is losing the broadband war. Perhaps this issue is apropos to Verizon and AT&T alone. Both of them are somewhat distracted. As mentioned earlier, FiOS has all the attention at Verizon and AT&T is in the midst of iPhone mania. It might not be fair to generalize DSL’s woes based on those two alone. As other telcos release their quarterly numbers, we may see a more general trend that either supports or detracts from this potential DSL growth hypothesis.

We all know that broadband growth is slowing. And the U.S. economy and the uncertainty it creates doesn’t foster great conditions for growth in any sector. These factors may be impacting DSL’s apparent slowing momentum. But what’s troublesome for DSL carriers per the economy, is that DSL has historically been the broadband “value play” (across a national average – this “value” price advantage is not present in every market). Logically speaking, in this economy, DSL should be holding up well relative to other more expensive broadband options. To get a true picture of DSL’s potential trouble, we’ll have to closely examine upcoming cable modem numbers. If cable modem additions are not slowing at relatively the same pace, DSL may indeed have a problem. It may signal telecom carriers will have to increase their efforts to make their bundle more attractive and their value proposition more relevant with subscribers. As their quarterly numbers reveal, AT&T and Verizon have less to worry about on this issue, because wireless revenue comes in to save the day for them. DSL carriers who don’t have that luxury may indeed need to ask what’s wrong with DSL. What is your DSL experience revealing for you?

The FCC recently conducted a hearing on the future of broadband and digital media at Carnegie-Mellon University in Pittsburgh. Among the typical fanfare at FCC meetings like this, an interesting point of view emerged from FCC Commissioner Michael Copps. In his opening remarks, Copps likened broadband access to a civil right. In regards to broadband, Copps says, “no matter who you are, where you live, how much money you make, whether you are young or old, rural or inner city, healthy or dealing with a disability, you will need—and you are entitled—to have these tools and services available to you. I think it’s a civil right; I really do.” I wonder where he thinks broadband get’s placed in the civil rights pecking order. Maybe before the right to vote, but after liberty.

We all know that broadband’s adoption is slowing. We also know that the more educated and affluent you are, the more likely you are to have broadband in your home. Probably the biggest challenge to broadband ubiquity is cost. Cost both to network providers for building it out, and to the end user for purchasing it. Until such time that those costs are dramatically lowered (either through free market economics or regulatory subsidies), this new “civil right” will certainly not be available to everyone. Is Copps likening of broadband to a “civil right” entitlement realistic? If so, how will we breakthrough through the current slowing broadband penetration rate to achieve it?