Slowdown in ILEC DSL Growth is Worrisome, to Say the Least

Verizon Loses 145k Non-FiOS Subscribers in 4Q10 – Did They All Upgrade?

Verizon (NYSE:VZ) is one of the first companies to report its quarterly results each period, and of course, it’s the second largest LEC in the nation.  And while one data point may not be much to go by, we’re concerned by the trend in slowing broadband connection growth for ILECs.

In its earnings release and conference call, Verizon hyped up the nearly 200k new FiOS Internet customers it added in the fourth quarter, but you had to mine the numbers to see that its overall broadband subscriber count grew by only 52k.  That means the company lost 145k “non-FiOS” broadband connections in the period.

Did they upgrade to FiOS?  Surely many of them did.  But we decided to take a look at recent trends in both ILEC and cable broadband connections, and the loss of momentum is plain, for both types of operator.

In the trailing 12 months ended September 30, 2010, annual growth in ILEC broadband connections had fallen to just 3.9%; back in 2007 the growth rate was nearly 10%.  And while it’s true that penetration has increased, by our calculation broadband penetration of ILEC voice lines was just 31.4%.

On the cable side, broadband penetration as of September 30 was 74.4%, and that was up by 668 basis points, compared with a 427 quarterly bp increase for the ILECs.  Cable’s broadband growth rate held up slightly better as well.  In the TTM, cable’s broadband connection growth rate was 5.5%.

It seems cable operators are running a nose ahead of the ILECs when it comes to broadband services.  Fiber deployment by the ILECs may help reverse that trend, but there are simply too many areas where the economics don’t work and even Verizon and AT&T have reined in their fiber rollouts due to cost.  And while USF reform may eventually address the rural broadband issue, we’re not holding our breath!