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Broadband Access
Cable broadband is beating DSL to a pulp
Telco customer defection contributed to subscriber decline
by Sean Buckley
Here in Boston, Mass., the Red Sox may be nearing first place in the American League East, but in the telco vs. cable operator broadband race, it’s clear that the telcos are in a bit of a Q2 2008 batting slump.
Blame it on the housing slowdown or market saturation, but there’s no escaping the fact that the telco’s broadband service growth left a lot to be desired.
During the quarter, Verizon added only 54,000 new subscribers (DSL), down from 288,000 in 2007. Baby Bell brothers AT&T and Qwest did not fare well either as they only added only 46,000 and 31,000 subscribers respectively.
“It was a pretty horrible quarter all around,” said Ben Piper, Director of the Strategy Analytics Multiplay Market Dynamics service. “Clearly, the telcos were hit more severely than the cable companies. I guess our net from this is that the cable offering now outshines the telco DSL offering.”
Cable, despite its own subscriber slowdowns, continues to crank up the broadband subscriber volume.
Leading the cable broadband pack was Comcast. While its numbers overall were down 18% from 339,000 new subs in Q2 2007, Comcast added 278,000 new broadband subscribers.
Not far behind Comcast was Time Warner Cable with 201,000 subscriber additions.
Beyond the flagging economy, the obvious question is what is causing the telcos to fall behind the broadband adoption curve? Apart from the seasonal slowdown, Piper also emphasized to me the need for speed and more readily available video services are driving customers away from DSL and onto cable.
“It’s an experience effect,” says Piper. “The more that consumers can do with higher speeds the more they want it.”
Okay, we all know that the two big telcos (AT&T and Verizon) are making aggressive inroads into video, but the key problem argues the two analysts when it comes to video service is video service availability.
“I think it does depend on the user,” says Piper. “Looking at [Verizon’s] FiOS and [AT&T’s] U-Verse, the availability is still not there.
Teresa Mastrangelo, principal analyst for broadbandtrends.com, expressed a similar sentiment in a recent blog posting on her site.
“Presently, cable telephony services are available to about 90 percent of all cable subscribers, whereas telco video services are spotty at best,” she said.
What this suggests is that no matter how compelling IPTV or FTTH-based service are, if it’s not available in a subscriber’s area, they’re going to seek out the next alternative provider that does have video.
With an entrenched video footprint it’s not hard to layer on a voice and data service bundle.
To compete on par with cable, telcos are going to have to really step up their fiber and video rollouts. Of course, getting there won't be an easy task.
Cable is hungry
The good news is that cable can offer higher speed services over coax, but the bad news for the telcos is that they can do it today over their existing plant.
Apart from watching the occasional YouTube concert clip, I have not completely taken advantage of cable's higher speeds.
What struck me as both funny, but yet somewhat informative was Comcast’s “Fast, it’s not for everyone” commercial about showing cable's bandwidth advantage over DSL. In the commercial you see two turtles (aka Bill and Carolyn Slowsky) nervously talking about how they can’t handle cable’s speeds and that DSL’s slowness was more comfortable for them.
Although prices and packages vary, cable’s triple play is pretty competitive. Comcast, in addition to offering a 50 Mbps on the high end of its broadband tier, has built a triple play bundle for about US$129.99 a month with 6 Mbps of Internet, while Time Warner Cable and its “All the Best” package offers up the triple voice, video and data play for US$99.95 for the first year.
But while coax with channel bonding and DOCSIS 3.0 will float them into the near-term, it’s hard to imagine that cable is not at least thinking about a fiber-to-the-x-based future.
Erik Keith, senior analyst of broadband infrastructure for Current Analysis, believes that cable’s eventual foray into FTTX is inevitable.
“The bottom line for cable operators is that even with DOCSIS 3.0, MPEG-4, node splits and switched digital video (SDV), they are still spectrum-constrained, especially as an increasing number of channels are broadcast in HD, and the number of HD feeds per household increases,” he said. “So, over the long term, cable operators will also have to take fiber all the way to the end user to match the telco competition. And as telcos move beyond GPON, cable operators will be at an increasing disadvantage unless they migrate to FTTH.”
Outside of smaller regional cable operators and independent telcos with cable arms and Cox issuing an RFI for FTTH products, cable MSOs have been pretty mum on the fiber subject.
If and when cable does decide to move on Fiber to the Home (FTTH) via either the emerging SCTE-based RF over Glass (RFoG) standard, GPON or Active Ethernet, the initial focus would likely be on Greenfield builds. (see Cable mines for fiber).
Focusing on the Greenfield opportunities with RFoG-based products that let the cable operator leverage and extend their existing headends and related cable gear, could help cable pave a fiber path.
Telco’s fiber diet
Although the RBOCs probably won’t admit this directly to the media, it was refreshing to hear the ever-candid Jim Hansen, SVP of networks of EMBARQ, which currently favors a FTTN approach, acknowledged to me during a conversation at this year's NXTcomm show his own concern about bandwidth capabilities.
“Its table stakes — you got to increase your speeds,” he said. “1.5 Mbps, which we were soo thrilled about two years ago, is quickly becoming the dial up of the DSL world.” (see EMBARQ ups the network ante).
I can only hope the rest of the RBOCs are listening.
Unlike the cable companies, the big three telcos, despite their differences in architectural approach for FTTX, have been public about their rollouts. Verizon currently passes over 11 million premises with FiOS Internet and 9.6 million homes with FiOS TV. The operator has set a lofty goal of passing 3 million homes yearly through 2010 when it says it will have passed about 18 million homes.
Meanwhile, AT&T reported it had over 11 million homes passed for its U-Verse service, while Qwest now passes more than 1 million potential customers in 18 markets.
In order to avoid the ongoing mentality that DSL is becoming ‘the new dial up’ as Piper suggests, telcos will have to increase their fiber footprints and improve their speeds.
“A lot of people have faster speeds at work and come home and have a pokey DSL connection, and they say this is not doing it for me,” said Piper. “Then, there’s the idea that DSL is becoming the new dial up, which is quite telling.”
Still, for all the promise the RBOCs have with a fiber future, in the near-term cable clearly has the upper broadband hand.
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