Communication Solutions

After second quarter reporting, it appears all the larger telcos are facing sluggishness in the broadband segment, with Verizon, AT&T and Qwest (News - Alert) reporting a rather dramatic slowing of net broadband additions.

To be sure, cable operators are reporting smaller increases as well.

But in the first six months of the year, Time Warner Cable and Comcast (News - Alert) have added 834,000 high-speed Internet customers, while the four largest telephone companies (AT&T, Verizon, Qwest and CenturyLink) have added a combined 427,000 broadband customers. And in the second quarter, the four telcos collectively lost 28,000 subscribers.

Verizon added 196,000 net FiOS (News - Alert) Internet subscribers in the second quarter. AT&T added about 188,000 net adds. Qwest added about 7,000 net new customers.

Comcast added 118,000 broadband Internet customers in the second quarter, a tally that was lower than some expectations.

Back in 2006, for example, it wouldn't have been unusual for Verizon (News - Alert) and AT&T to add half a million customers a quarter.

The top telcos experienced a sharp cut in net broadband adds in the second quarter of 2008 as well, but after revampting marketing effort net additions climbed in the third quarter, suggesting that marketing inattention can affect net additions. The second quarter is seasonally weak, but the second quarter 2008 additions were abnormally low.

Verizon Communications Inc., in the second quarter of 2008 was the first telco ever to see a drop in DSL subscribers, for example. Lower net adds would not have been surprising.

Cable and phone companies added 887,000 new broadband customers during the second quarter of 2008, half the number they added a year earlier, according to research from Leichtman Research Group.

But an order of magnitude drop in a single quarter was highly unusual.

Verizon and AT&T experienced an unusual order of magnitude drop in net broadband adds, something completely at odds with several years worth of quarterly additions.

Aggressive promotioinal activity by cable companies undoubtedly played a role, combined with some sort of inattention to broadband marketing on the part of the telcos. That experience might cause some concern about the second quarter 2010 results.

The other angle is that Qwest executives said during that firm's second-quarter earnings call that "we’ve also seen uptick in a complete disconnect, which is a little different than I would say in the past."

As for why, one immediately thinks of the prolonged effects of the recession. But some might also speculate that wireless substitution now is having some different impact. Qwest seems to believe the second quarter results are a reflection of heightened domicile mobility in the second quarter (people are moving). If the results continue, we might have to look at othe explanations.

The market is saturating, as has been clear for a couple of years. But one wonders whether the second quarter shows other forces at work as well, including some accelerating change in consumer preference for cable modem offers as opposed to digital subscriber line, for example.