Entries in Connections (17)


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.


2Q11 Connections: DBS Subscribers

Satellite Providers Lose 109k Video Subs in 2Q11  

The second quarter was the first quarter on record that the two dominant satellite providers had a net loss of video subs in the U.S.—the base fell by 109k customers overall. Leading the downward tumble, DISH Networks (Nasdaq:DISH) lost 135k subs in 2Q11, its second-worst quarterly loss on record (156k in 4Q10). DirecTV (Nasdaq:DTV) didn’t fare well either, adding only 26k subs domestically—a 75% drop from its 2Q10 adds. As gross customer adds lagged for DirecTV in 2Q11, its churn rate also ticked up 5.3% as customers jumped ship to other providers.

Both satellite providers blamed the flight of subscribers in 2Q11 to aggressive marketing from competitors and attributed the lack of new customer gains to the lagging economy. Both trends however are deeply intertwined. DISH and DirecTV lack their own Internet and phone services, preventing them from independently offering the deeply-discounted promotional offerings for multiple services that cablecos and telcos can. As consumers have become more cost conscious with the lagging economy, these bundled packages can logically lure customers away from DISH and DirecTV. The cheaper OTT video substitutes such as Hulu and other streaming options have no doubt impacted DISH and DirecTV’s video market share as well. 

The publicly-traded ILECs that offer DISH or DirecTV to their customers, added approximately 15k satellite video subs in 2Q11. CenturyLink inherited Qwest’s 1m DirecTV subscribers in the quarter, while Frontier Communications (NYSE:FTR) renewed its partnership with DISH and will expand of its DISH offering to all Frontier markets. AT&T (NYSE:T) shed 44k satellite subs in 2Q11, while Verizon (NYSE:NZ) once again did not disclose its DirecTV subs.


2Q11 Connections: Wireless Connections

Wireless Growth in 2Q11 Fueled by Smartphones

Wireless providers added 4.4m wireless connections in 2Q11, driven again by iPhone activations and the growing popularity of tablet computers. Our sample grew wireless connections 9.6% on a weighted average basis YoY. The sustainability of these gains is a question mark as the overall wireless penetration of population now exceeds 100%, but wireless connection growth for the foreseeable future will come from data-only subs.

Shenandoah Telecommunications (Nasdaq:SHEN) reported the sample’s top annual growth on percentage basis, growing its wireless connections 46.1% YoY.  A majority of Shenandoah’s 105k net wireless gains over the past year were prepaid subs, thanks to an agreement with Sprint that allowed it to serve Virgin Mobile customers in its service areas, and also due to increased sales of Sprint Nextel’s (NYSE:S) Boost prepaid phones. 

Verizon (NYSE:VZ) added 2.3m wireless connections in 2Q11, the best quarterly gain of the quarter, but a jump lower than its 1Q11 increase which followed the February release of the Verizon iPhone. While Verizon activated 2.3m iPhones in 2Q11, it took the company only two months to activate nearly the same amount (2.2m) in 1Q11. AT&T (NYSE:T) also reported significant, but stunted wireless growth in 2Q11, gaining a net 1.1m connections in the quarter, after adding 2m in 1Q11. Weathering the competition from Verizon’s new Apple offering, AT&T managed to sell 5.6m smartphones in 2Q11, 3.6m of which were iPhones.

The demand for mobile data and the popularity of smartphones and tablets such as the iPhone, Droid, and iPad continue to drive wireless connections up. AT&T is exhibit A.  A year ago smartphone users made up 36% of its wireless postpaid subscriber base; they now make up 50% of postpaid customers. Smartphone users accounted for 36% of Verizon postpaid subs in 2Q11, but 60% of postpaid phones sold by Verizon in the quarter provided Internet connectivity.

As recently discussed in our JSI Capital Advisors’ Communications Industry Forecast, by the end of 2011 we expect every person in the U.S. will have an average of 1.1 wireless connections.  With the majority of consumers already owning cell phones, the key to wireless connection growth in future quarters: subscriptions for data-only devices like iPads and other tablets. While wireless providers currently do not break these subs out, we estimated there to be 14m data-only wireless connections as of 2010 and project this total to grow at a CAGR of 25.2% over the next ten years.


2Q11 Connections: CATV Video Subs and Homes Passed

CATV Video Penetration of Homes Passed Falls to 44%

Publicly-traded cable companies combined to shed 469k video connections in 2Q11, as all but two cablecos in our sample reported video customer losses in the quarter. In addition to facing competition from satellite and telcos for video market share, over-the-top video options such as Hulu and Netflix have no doubt chewed into the customer base of cablecos. Over the past year cable companies have lost nearly 1.3m video connections, an overall decline of 2.7%.

The two largest providers, Comcast (Nasdaq:CMCSA) and Time Warner (NYSE:TWC) accounted for 77% of the connection losses in 2Q11—around 360k subs. Charter’s (Nasdaq:CHTR) connections however declined the most on percentage basis, as it lost 6.4% of its video customers YoY.

Acquisitions have fueled the only video sub gains reported by cable companies in recent quarters, including Cablevision’s (NYSE:CVC) 271k video adds in 4Q10, and both Knology’s (Nasdaq:KNOL) and Suddelink’s customer growth in 2Q11. Knology added video subs through its acquisition of CoBridge’s cable systems in 2Q11, while Suddenlink added 82k basic cable subs with its 2Q11 purchase of NPG cable. This trend promises to continue in the rest of 2011 as well, with Charter having closed on a pair of deals in 3Q11 and Time Warner’s purchase of Insight set to close later this year.

Despite the video connection losses, the cable companies increased their number of homes passed by 54k in 2Q11. The decline of video penetration of these homes however continued in the second quarter, falling to 44% on a weighted average basis. Penetration has fallen in every quarter for the cablecos since 2Q09. Alaskan-based GCI (Nasdaq:GNCMA) continued to report the highest video penetration of homes passed at 61.6%, while Knology posted the lowest penetration at 24.2%.  


2Q11 Connections: ILEC Connections Mix

ILEC Connection Mix Shifts to Video and Broadband

For publicly-traded ILECs across the board, voice connections as a percentage of total connections fell YoY in 2Q11, as the telcos shift to video and data services. While wireless accounted for the largest share of connection mix for the ILECs that are also wireless providers, only the giants experienced any significant growth in wireless as a percentage of connections mix.

Wireless connections represented 53.3% of total connections on average in 2Q11 for the eight LECs in our sample that offer wireless to customers. Over a two year period, AT&T (NYSE:T) and Verizon (NYSE:VZ) have shifted their connection mixes increasingly towards wireless: between 2Q09 and 2Q11, wireless share of connections increased from 52.6% to 61% at AT&T, and from 62.7% to 71.1% at Verizon. Telephone and Data Systems’ (NYSE:TDS) wireless percentage also ticked up slightly to 85.6% in 2Q11, but the other five LECs experienced wireless percentage declines.

Despite widespread access line losses, wireline voice connections on average still accounted for 50.5% of the total connection mix for ILECs in 2Q11. Hawaiian Telecom reported the highest percentage of voice connections at 80%, and wireline voice also accounted for more the 70% of the connections mixes at Fairpoint (Nasdaq:FRP), Frontier (NYSE:FTR) and Otelco (Nasdaq:OTT). Of these four telcos, only Hawaiian Telecom also offers wireless to its customers (only 1.4% of total connections).

NTELOS (Nasdaq:NTLS) was the lone LEC in the sample to increase its voice percentage YoY in 2Q11—voice connections growing from 15.6% to 26% of its mix. NTELOS doubled its voice subs in 4Q10, adding 85k access lines through its 4Q10 acquisition of FiberNet, but has lost 900 voice connections in the first six months of 2011.

The mean video share of connection mix rose from 7.7% to 8.8% YoY, with all 14 LECs offering television service reporting higher percentages of video connections in 2Q11. New Ulm Telecom’s (OTC:NULM) continued to reflect the highest percentage of video subs in its mix at 21.6% in 2Q11. Elsewhere, Shenandoah Telecom (Nasdaq:SHEN) increased its video connections from 8.0% to 13.95% of its total connections YoY, thanks to cable system acquisitions from JetBroadband in 3Q10 and Suddenlink in 4Q10. At the low end, despite adding FiOS and U-verse customers in 2Q11, video still represents only 3%-4% of total connections for Verizon and AT&T.

On average, broadband subs made up about 19% of connections for ILECs in 2Q11, up from 17.9% in 2Q10. Windstream (Nasdaq:WIN) reported the highest percentage of broadband connections in its mix at 30.5% in 2Q11, followed closely by SureWest (Nasdaq:SURW) and Warwick Valley (Nasdaq:WWVY) at 29.4%. Meanwhile, broadband subs accounted for only 3.8% and 5.4% of connections for TDS and NTELOS in 2Q11.