DSL

Broadband Price War on the Horizon?

Bernie — Tue, 02 Sep 2008 10:08:39 -0400

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.

Qwest CTO: We Will Be Fine With DSL

Bernie — Mon, 25 Aug 2008 11:49:39 -0400

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.

AT&T Looking to Invigorate DSL Sales

Bernie — Wed, 20 Aug 2008 23:12:47 -0400

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.

Justifying FTTH

Bernie — Tue, 19 Aug 2008 10:25:10 -0400

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.

Verizon Targets College Students With New Broadband Plan

Bernie — Thu, 14 Aug 2008 22:14:19 -0400

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.

Time to Prepare for DOCSIS 3.0 is Now

Bernie — Thu, 07 Aug 2008 12:39:55 -0400

Second quarter results for broadband growth were a tad underwhelming. There are any number of factors which probably contributed to this slowdown, with the economic slowdown and housing crisis certainly towards the top of the list. But growth is also slowing because broadband penetration has grown considerably over the past few years, now ranging somewhere between 50% to 60% (depending on who you ask), and is beginning to slow down. There certainly is more room for growth, but at some point in the near future, broadband penetration will slow even more as it approaches saturation. It’s anyone’s guess what saturation is, but I would bet somewhere around 75% penetration of households (as a national average - individual markets will vary widely). From a service provider’s point of view, that suggests that posting continuing net adds of broadband customers will increasingly involve convincing a competitor's broadband customer base to switch service.

Is Cable Pulling Away From Telco?

Bernie — Wed, 30 Jul 2008 20:20:27 -0400

Comcast released their quarterly numbers today, and they potentially offer some bad news for telcos. It begs the question, is cable pulling away from telcos in the competitive race? Perhaps. But we also know this race is a marathon, not a sprint. First let’s look at some numbers for Comcast’s 2Q08:

278K new broadband subs in 2Q08, 14.4 million total, representing 29% penetration of homes passed
555K new digital voice customers, 5.64 million total, representing 12.5% penetration of homes passed
Lost 138K basic video subs, but gained 320K digital subs

Pretty impressive when put into the context of their major telco competitors, who are "licking their DSL net adds and switched access line loss wounds." I guess we know one of the reasons why DSL growth slowed so much last quarter. From a 2Q08 perspective, Comcast kicked telco butt. Sanford C. Bernstein & Co. Inc. analyst Craig Moffett tells Light Reading’s Cable Digital News, “...that U.S. cable will own as much as 90 percent of the broadband net additions when the book on second quarter is closed.” What’s even more alarming for telcos is that Comcast CFO Michael Angelakis revealed that new, “premium Internet tier” additions were added at a four-to-one ratio when compared to their “economy” tier. That suggests that cheaper priced broadband is not as appealing as faster more robust packages. If that is indeed true, than DSL may be in even more trouble. DSL is considered the “value” option because, generally speaking, it costs less than cable modem. But if customers are opting for faster bandwidth over cheaper pricing, cable may have an inherent advantage. An advantage that will only be enhanced when DOCSIS 3.0 or wideband becomes more available. Are all the “value” conscious broadband subscribers gone?

What’s Wrong With DSL?

Bernie — Mon, 28 Jul 2008 17:55:10 -0400

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?

Verizon Expands 7 Mbps DSL Footprint

Bernie — Thu, 12 Jun 2008 01:00:00 -0400

Verizon announced the expansion of 7 Mbps DSL service to an additional 3.4 million customers across 20 states and the District of Columbia. The move in effect doubles the capacity of Verizon’s most widely deployed DSL service of 3 Mbps. Verizon began the upgrade in January, when they announced its availability with 400K customers.

Vonage Enters DSL Resale Business

Bernie — Fri, 09 May 2008 09:53:44 -0400

Vonage announced they will begin marketing DSL service through a reseller arrangement with Covad. The new service will be branded Vonage Broadband, and is expected to be offered by the end of the year. Vonage will offer two DSL packages, one at 3 Mbps and another at 6 Mbps. Vonage states in their press release, “This offering will expand Vonage's competitive position in the marketplace by integrating these services for customers who prefer this option.”

Give Vonage credit – they’re not rolling over and playing dead, despite their considerable and well publicized challenges. This new arrangement may help them address one of their most daunting issues – having to depend on their competitors for a broadband pipe into their customer’s homes. Cable and telecom companies provide the vast majority of access for Vonage to their subscriber base. But of course, those same companies offer competing voice services and aren’t exactly willing transporters of Vonage service. That being said, it’s still a significant stretch for either existing Vonage subscribers to switch broadband service providers or new subscribers to accept broadband from Vonage over the status quo of DSL, cable modem, or increasingly, FTTH. Time will tell if this resale arrangement makes any difference. For Vonage, at least it broadens their scope and capabilities, and gives them a bundle to sell. Who knows, maybe the triple play is next for Vonage. Perhaps Jeff Citron and Charlie Ergen of DISH Network are exchanging emails already.