Analysts: Cable broadband growing faster than telcos and DSL

The current growth of DSL in the US remains less compelling than that of broadband cable, say the latest industry surveys. What may be more compelling, though, is that cable is now overtaking telcos.

Four years ago, only 20 percent of US homes subscribed to a broadband service, compared to 57 percent this year, according to a recent report by Leichtman Research Group (LRG) entitled "Broadband Access & Service in the Home 2008."

But by now, the US broadband market has peaked, making it a lot tougher for cable and DSL providers alike to lure new customers, industry analysts tend to agree.

What they don't appear to agree upon, are the reasons why. Some cite cable's greater bandwidth, while others suggest that telcos must return to more aggressive pricing on DSL while awaiting fuller deployment of emerging technologies such as fiber-to-the-premises (FTTP), used for Verizon's FiOS and AT&T's U-verse.

Broadband service providers added only about one million (net) additional subscriptions in the second quarter of 2008, compared with two million in the first quarter of the year, says a new report from Strategy Analytics called "US Broadband - Is DSL the New Dial-up?"

Although telcos were especially hard hit, cable providers did only somewhat better, according to Ben Piper, an analyst for the research firm.

"Cable pricing has always been slightly higher," Piper acknowledged, during an interview with BetaNews.

Regardless of any financial impact, however, many customers prefer cable, because cable providers are building out their existing networks. "In some cases, [users] can get twice as much speed on cable as on DSL," the analyst from Strategy Analytics told BetaNews.

Piper took issue with the usage-based pricing model now being tested by Time Warner Cable (TWC), labeling it a "bad PR move on TWC's part."

But, he contended, some of the bandwidth caps now being considered by cable companies -- such as the 250 GB monthly limit being planned by Comcast -- "really aren't unreasonable" for most customers.

Piper admitted that cable's current bandwidth advantages will be usurped by newer telco technologies such as FTTP (also known as fiber-to-the-home, or FTTH). Yet for their part, he added, the cable providers have ultra-fast DOCSIS 3.0 technology now on the way.

According to another analyst, however, bandwidth differences are not generally the biggest factor behind customers' increasing preferences for cable right now.

In one of LRG's recent studies, 72% of cable broadband subscribers rated the quality of their Internet connections between "8" and "10" on a 10-point scale -- but so, too, did 62% of telco broadband subscribers.

Bruce Leichtman, president and principal analyst for LRG, first took note of DSL's downward slide in adding new customers in reviewing his company's research for the first quarter of 2008. At that time, top cable providers gained 1.2 million subscribers, representing 54% of the net broadband additions versus the top telephone companies.

"This is the first quarter since 3Q 2004 that cable added more broadband subscribers than telephone providers (did)," Leichtman observed in May, when the Q1 report was released.

At the time, he also pointed out that "with telephone companies generally curtailing prior aggressive price-based offers to woo subscribers, the telcos added [only] about two-thirds as many broadband subscribers as a year ago."

Then, in a report released in August, Leichtman found that the situation of the telcos had actually worsened in Q2, with cable companies adding 670,000 new subscribers, or 76% of the net broadband additions for the quarter.

In an interview with BetaNews today, the LRG analyst maintained that the DSL businesses of companies such as Verizon and AT&T have been fading as these telcos pay increasing attention to emerging services such as FiOS and U-verse.

Verizon, however, has now announced a new promotion offering six months of free DSL service to its existing landline customers.

"With FiOS, Verizon has really been going after higher-end customers, seeing them as more difficult to acquire, but also as more valuable," Leichtman told BetaNews. "But now, it looks as though Verizon is trying to go back after the lower end of the [broadband] market, too."