Wednesday
Dec142011

Wireline Connections Slide as Video and Broadband Fail to Replace Voice Losses

3Q11 Connections: ILEC Quarterly and Annual Growth Rates 

The overall snapshot for ILEC connections growth in 2011 remains negative, despite some positive trends in broadband and video.  Overall wireline connections have fallen by 3.7% in the year ended September 30, 2011, driven by connections losses at the largest companies. Verizon’s wireline connection total fell by 4.8% YoY while AT&T’s total dropped by nearly 3%. A few smaller companies are still growing, however; the mean change for the sample was +1.5%, although acquisitions were behind the really notable gains.

Through the end of September, the public ILECs lost 10.3% (YoY) of their voice customers, bringing the total down to 91.6m. Over the same time frame, total ILEC broadband connections increased by 10.5%, to just less than 40m and video connections increased by 13.2%, to 13.6m.

On a quarterly basis, total wireline connections fell 1.1% in the period, but broadband growth was less than 1% and video growth was just 2.1%. On the other hand, voice connections fell by just 2.3%, which is slower on an annualized basis than the 10.3% lost YoY.

NTELOS’ whopping 74% gain and Shentel’s 10% increase in wireline connections were acquisition fueled, but a handful of companies did enjoy organic growth.  Notably, Consolidated Communications managed to grow its voice connection base marginally YoY and posted a 2.6% organic increase in total connections.

Wednesday
Dec142011

ILECs Growing Video Market Share

3Q11 Connections: Voice, Video and Broadband Market Shares

While wireless providers may be  running away with the market for voice services, ILECs are holding their own against cable providers in the video and broadband arenas—although arguably much of the growth in video in particular may be attributable to the popularity of Verizon’s FiOS and AT&T’s U-verse offerings.

At the end of the third quarter, wireless providers controlled an estimated 73% of the market for voice services, compared with 22.1% for the ILECs. Cable providers grew the fastest in terms of adding voice connections, at 12.2% but nonetheless controlled less than 5% of the market. It’s safe to say that wireless will continue to eat away at the voice market, stealing share largely from the ILECs. Cable providers may be adding voice subscribers, but the bulk of those are low value bundle customers who add the VoIP voice service as part of a bundle at little if any extra cost.

In the video arena, ILECs grew their base by more than 13% over the past year, but market share is still dominated by the cable and DBS providers.  Cable subscriber losses have pushed its market share down to less than 50%, but DBS continues to grow. DirecTV and DISH controlled 36.1% of the market as of quarter end, leaving the ILECs with a 14.5% market share of video connections.

Broadband continues to be an encouraging area for the incumbents, where ILECs grew their base by 4.7% over the past year and control more than 51% of the total market, although in the latest quarter the cable companies did add nearly twice as many connections as the ILECs. 

Tuesday
Dec132011

Wireless Connection Growth Accelerating; Up 10% YoY

3Q11 Connections: Wireless Connections

After three years of averaging about 6% annual growth rates (in 2008, 2009 and 2010), the wireless industry in 2011 has seen its connections growth accelerate to the fastest rate since 2006, thanks at least in part to the growing popularity of data-only devices like tablets. Through 3Q11, wireless connection growth for the public companies (which comprise the vast majority of the industry nationwide) was 10%. Back in 2005-2006 we measured growth of just under 13% (12.8% for each year); by 2007 increasing handset penetration made for a growth rate that slowed to 9.1%.

But as we’ve been writing for numerous quarters, the divide between the ‘haves’ and the ‘have nots’ continued to widen in the most recent quarter. The top-three carriers—Verizon Wireless, AT&T and Sprint Nextel—accounted for virtually all of the growth among the 13 public companies in our sample. Just 3% of the total 4.95m net new connections in the quarter came from other carriers. Notably, AT&T-target T-Mobile has lost customers year-to-date, despite a 126k net gain in 3Q11. AT&T, Verizon Wireless and Sprint posted annual growth rates of 8.6%, 15.6% and 9.4%, respectively, through 3Q11.

AT&T led in terms of net adds in the period, due at least in part to its heavily discounted iPhone 3 promotion, which offered the older model handset for just $50. In its current holiday promos, AT&T is offering that model for $0.99, which could lead to continued strong results in the fourth quarter.

Verizon Wireless saw its net growth decline substantially when compared with the prior two quarters; the nation’s largest provider added 1.4m new customers, down from 2.3m in 2Q11 and well off the 9.9m net adds it posted in 1Q11 when it introduced the iPhone for the first time.

#3 Sprint managed to improve its net adds marginally in the quarter, although it continues to draw most of its growth from lower-value prepaid subscribers while Verizon and AT&T dominate in terms of postpaid subscriber growth.

Among the smaller operators, Hawaiian Telcom’s fledgling wireless operations posted the highest increase on a percentage basis, but Shenandoah Telecom, MetroPCS and Leap Wireless were relatively impressive, with 19.2%, 16.4% and 13.1% annual growth rates, respectively. Shenandoah has benefitted this year from its reworked arrangement with Sprint which allowed it to take control of the Virgin Mobile and Boost Mobile subscribers in its markets. Shentel’s prepaid customer base has grown by 75% over the trailing twelve months.

On the down side, Cincinnati Bell, NTELOS, GCI, and United States Cellular were all net losers in the latest quarter. Also to keep in mind, the number of wholesale/resale customers in the sample fell by more than 1m customers in the second quarter due to CenturyLink’s acquisition of Qwest. CenturyLink continues to resell Verizon Wireless service, but does not report its subscriber totals. Those subscribers are, however, already included in the Verizon Wireless reported figure.

 

Tuesday
Dec132011

DirecTV and AT&T Narrow the Gap for Top Spots in Video, Wireless

3Q11 Connections: Ten Largest Providers

The top providers by connections in all categories remained the same in 3Q11: AT&T (NYSE:T) in wireline voice, Verizon (NYSE:VZ) in wireless and Comcast (Nasdaq:CMCSA) in video. In wireless and video however, the second place finishers narrowed the subscriber leads in 3Q11, outgaining the top dogs for the quarter.

While AT&T has had a difficult month on the T-Mobile front, the #2 wireless provider outperformed Verizon in 3Q11. It added 2.1m wireless connections in the quarter--surpassing the 100m mark--and outgained Verizon by 700k connections. Overall, the top ten wireless providers added a combined 4.9m connections in the quarter, while the top ten wireline voice providers lost nearly 2m voice lines.

In the video top ten, it was DirecTV (Nasdaq:DTV) making a charge at #1 Comcast in 3Q11. Benefiting from the move to offer its flagship NFL Sunday Ticket package for free, the leading satellite provider added a net 327k U.S. subscribers in 3Q11—its best third quarter gain in six years. DirecTV took nearly 500k subs off of Comcast’s lead, as the leading cableco shed 165k video subs in the quarter. With 19.8m video customers, DirecTV trails Comcast by 2.6m connections. Elsewhere, AT&T and Verizon both experienced around 2.5% growth in video subs QoQ, the strongest percentage growth of the top ten providers.

In wireline voice, the four cablecos in the top ten reported slim QoQ connection gains in 3Q11, while the six LECs in the top ten shed a combined 2.1m connections in the quarter. AT&T accounted for a majority of the losses, dropping 1.2m connections, or 3% of its wireline voice customer base. The #2 and #3 wireline voice providers didn’t fair much better, as Verizon and CenturyLink (NYSE:CTL) lost 478k and 254k subs QoQ in 3Q11.

Looking ahead in the top ten categories, the battle for first in wireless should be interesting to watch. After a strong 3Q11 for AT&T, its acquisition of T-Mobile is now on life support, creating some uncertainty for company. Meanwhile, through its spectrum acquisition from the cablecos, Verizon is making moves to solidify its top spot in wireless.

Monday
Dec122011

Broadband Share of ILEC Connections Nears 20%

3Q11 Connections: ILEC Connections Mix

While the publicly traded ILECs shed 10.3% of their access lines YoY in 3Q11, wireline voice subs on average still accounted for 50.1% of total connections for ILECs in the quarter. That percentage however is likely to dip below 50% in the near future as more consumers do away with their home phone and the penetration of video and Internet services continues to improve.

Within our sample of ILECs, there are two distinct groups with vastly different connection mix makeups: those with a wireless service and those without. For the seven LECs in our sample that offer wireless service, wireless subs accounted for 61% of connections on average in 3Q11. Aside from the wireless giants—AT&T (NYSE:T) and Verizon (NYSE:VZ)—the LECs experienced minimal growth or stable declines in wireless as a share of total subs over the past two years. Telephone and Data Systems (NYSE:TDS) reported the samples highest wireless percentage of 85.6%, thanks to its majority owned subsidiary US Cellular (NYSE:USM), while at the low end Cincinnati Bell’s (NYSE:CBB) wireless share was 33.4%.

For those without wireless operations, wireline voice connections continued to dominate the service mixes in 3Q11. Wireline voice accounted for a sample high 80.5% of connections at Hawaiian Telcom (Nasdaq:HCOM) followed closely by Fairpoint (Nasdaq:FRP) at 77.2%. Overall, voice connections as a share of total connections on average has slipped 8% from 3Q09 to 3Q11. NTELOS (Nasdaq:NTLS) was the outlier in the sample, expanding its share of voice connections YoY to 26% in 3Q11. The increase was the result of its FiberNet purchase, but in recent quarters its voice share has slipped.

Along with declining access lines, the other near unanimous trend for the public LECs has been their greater reliance on broadband Internet services. On average, broadband subs made up 19.2% of connections for ILECs in 3Q11, up from 18.3% in 3Q10. AT&T and Verizon were the only LECs to report YoY declines in broadband as a share of total connections in 3Q11, but only because the pair grew their wireless subs at a much faster pace. Windstream (Nasdaq:WIN) reported the highest percentage of broadband connections in its mix at 30.9% in 3Q11, followed by Warwick Valley (Nasdaq:WWVY) at 29.9%. At the low end, broadband subs accounted for only 3.9% and 5.7% of connections for TDS and NTELOS in 3Q11.

Video subs once again represented the smallest share of overall connections for the LECs in 3Q11 at 8.9% on average, but for nearly all LECs that percentage is on the rise. With the exception of Shenandoah Telecommunications, which has actually lost video subs since the beginning of the year, all LECs offering a video service reported a higher percentage of video connections in its mix YoY in 3Q11. New Ulm Telecom’s (OTC:NULM) reflected the highest percentage of video subs in its mix at 21.8% in 3Q11, while video subs at NTELOS and Cincinnati Bell represented only 0.6% and 3% of total connections.