4Q10 ILEC Penetration

Bundled Services Remain Popular as Broadband and Video Penetration Rise

Broadband and video penetration of voice connections has been on the rise for the last few years, and 2010 was no exception.  On average, broadband penetration reached 40.4% of voice connections during 4Q10, up from 32.4% in 4Q09.  At the high end, Shenandoah Telecom (Nasdaq:SHEN) reported broadband penetration of 142.4% at December 31, 2010, while Ntelos (Nasdaq:NTLS) reported only 19.5%.

Similarly, video penetration reached 28.5% during 4Q10, on average, up from only 19.3% during 4Q09. Shenandoah Telecom (Nasdaq:SHEN), which closed on its acquisition of JetBroadband’s cable operations on July 31, 2010, reported video penetration of 224.1% during 4Q10! The company’s video subscribers have long outnumbered its voice connections.  There are a still a handful of ILECs that do not offer video services, including Alaska Communications (Nasdaq:ALSK), FairPoint Communications (Nasdaq:FRP), Hawaiian Telcom and Telephone & Data Systems (NYSE:TDS).

4Q10 ILEC Quarterly Connections Growth

Video Providing the Most Growth for ILECs

Growth in voice and broadband connections in the fourth quarter of 2010 was anemic for ILECs, though video connections expanded at a somewhat more encouraging pace. Total wireline connections for our sample fell by 1.1% in 4Q10, driven largely by a loss of more than 4m voice connections. 

Total broadband connections increased by 7.4% overall, but that was driven by two companies: AT&T (NYSE:T) grew its wireline broadband connections 15.7% via U-verse, while NTELOS’ (Nasdaq:NTLS) 30%+ increase was driven by its December 1, 2010 acquisition of Fibernet. The mean and median growth for broadband, however, were 2.0% and 0.5%, respectively.

Total video connections rose by nearly 4% in the quarter; the mean growth rate was 5% and the median was 3.9%. Cincinnati Bell’s (NYSE:CBB) video connections rose by 34.4% thanks to success with its Fioptics product.  The company built out its Fioptics product past 30k new homes in 2010, bringing the total to 79k and its penetration of homes passed for the Fioptics entertainment and broadband access products was 30% of homes passed.

4Q10 ILEC Annual Connections Growth

Voice Connections Fall by 11.6% in 2010

The public ILECs lost nearly 13m voice connections in 2010, for an 11.6% decline, driving total wireline connections lower by 5.5%.  The mean change in voice connections shows a 8.5% increase, but that’s skewed by the Frontier Communications (NYSE:FTR) acquisition of Verizon (NYSE:VZ) lines, which more than doubled its voice customer base, as well as NTELOS’ buy of CLEC Fibernet.  The median decline in voice connections was -6.8% and the median change in total connections was -3.4%.

Broadband connections grew by 10.4% in the aggregate last year, fueled primarily by AT&T’s (NYSE:T) U-verse gains; the median growth in broadband connections was 6.0%.  And in video, the total increased by 17.3% while the median increase was 14%.  Here AT&T, Qwest  and Verizon had the largest non-deal related gains.  

4Q10 Ten Largest Providers

Not Surprisingly, AT&T and Verizon Top the Charts

For both wireline and wireless voice service, AT&T (NYSE:T) and Verizon (NYSE:VZ) were the top two providers at the end of 2010, while in the video category, AT&T came in fifth and Verizon ranked seventh—had AT&T not sold its cable ops to Comcast (Nasdaq:CMCSA) a few years back, it would probably be number 1 in all three categories!  The company edged past Verizon in the fourth quarter to take the number one spot in wireless, with 95.5m subs, and of course the pending acquisition of T-Mobile, if it goes through, will firmly cement AT&T in the top wireless slot.

In the wireline voice category, Qwest’s 8.9m connections ranked it third; now that the CenturyLink/ Qwest (NYSE:CTL) deal is done, the combined company will remain in third place, with more than 15m wireline voice connections. 

Comcast remained the top video service provider, with 22.8m subs, followed by satellite concerns DirecTV (Nasdaq:DTV) and DISH Network (Nasdaq:DISH), with 19.2m and 14.1m subs, respectively.  Time Warner Cable (NYSE:TWC) ranked fourth, with 12.4m subscribers.