The Bundle Made All the Difference in 2Q08

Much has been written about the tepid growth of North American broadband subscribers during 2Q08. Was it the economy? Seasonality? Are we hitting the penetration ceiling? The answer to all of those questions is yes.

Yes, the economy certainly had some impact, particularly with the state of the housing market; and yes, net additions in 2Q are typically lower due to student disconnects and moving patterns; and finally, as penetration of households continues to grow, new subscriber additions will begin to slow.

But to understand just how bad it really was, is to look at historical data and realize that total quarterly net additions (which were 1.1 million), were at their lowest levels since 1999.

Although both cable and DSL operators experienced significant quarter-over-quarter drops, the decline was most severe for DSL, where net additions were down nearly 90 percent. This was exasperated by the fact that both Verizon (VZ)and Bell Canada actually experienced a decline in DSL subscribers for the first time. By comparison, even though cable broadband net additions were down 43 percent over 1Q08, cable operators added 8x the number of subscribers as their DSL counterparts and nearly 2.5x as many, if we throw in FTTH.

So what is the difference? Why did cable experience a more favorable outcome in 2Q08? It was all about the bundle. During 2Q08, cable operators added nearly 1.4 million cable telephony customers, while telco video net additions were about one-third (approximately 500k) and that includes IPTV, satellite and hybrid video solutions. And how did this happen? It’s all about availability.

Presently, cable telephony services are available to about 90 percent of all cable subscribers, whereas telco video services are spotty at best. Operators partnered with satellite are able to offer coverage to a large portion of their subscriber base, but operators offering IPTV services are limited by their infrastructure buildout, making it difficult to market a service when a large portion of the subscriber base is ineligible.

In addition, cable operators are doing a fantastic job of marketing their telephony services and continuing to make them relatively relevant in a time when consumers are dropping fixed-line services for mobile.

Until telcos can offer a ubiquitous video service across their entire footprint, cable bundles will continue to win over subscribers and we may begin to see a pattern of declining DSL subscriptions.

Teresa Mastrangelo is principal analyst at broadbandtrends, a service of The Windsor Oaks Group LLC, which is an independent market research and consulting firm specializing in the coverage of network transformation activity related to broadband infrastructure and services, including IPTV, VoIP and NGN.

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