Second quarter mixed for broadband firms
U.S. broadband growth lags overall expectations in the second quarter but hands the two biggest cable and DSL providers sizable gains, cementing their respective leads over rivals.
SBC Communications startled analysts last month, reporting 304,000 new DSL (digital subscriber line) customers, dwarfing its closest DSL competitors, Verizon and BellSouth, which added 101,000 and 103,000 new subscribers, respectively.
SBC's DSL service is co-branded with Yahoo and marketed heavily throughout the Web portal. SBC pays Yahoo a percentage of the fees paid by every access customer, while Yahoo shares advertising and e-commerce revenues. Analysts said they are still trying to figure out whether SBC's partnership with Yahoo played a significant factor in SBC's quarterly uptick.
"It seems to speak well (of) partnering with a strong Internet and content brand like Yahoo," Jim Penhune, an analyst at research firm Strategy Analytics, said about SBC. "The flipside is what they give up in terms of revenue and income. They may have captured more customers, but they are presumably sharing the wealth by having an outside partner."
Meanwhile, on the other side of the broadband fence, Comcast maintained its sizable lead against its rivals. The nation's largest cable network reported 350,000 new cable broadband subscribers, compared with Time Warner Cable's disappointing 170,000, Cox Communications' 112,452, Cablevision Systems' 82,700 and Charter Communications' 76,700.
Cable companies claimed that their results, which analysts said came below expectations--with the exception of Comcast--were the result of seasonal factors, such as disconnects from college subscribers. Although it's true that the second quarter is usually slow, Comcast's momentum raises questions about why others disappointed.
Some of this may be due to Comcast's aggressive promoting to customers in the markets of its recently acquired AT&T Broadband.
"There are unique things happening with Comcast," said Mark May, an equity analyst at Kaufman Bros. "They are able to offset competitive pressures and seasonality by increasing their footprint in AT&T markets."
Despite the disappointing quarter for most cable companies, the industry continues to show more inroads into households than does DSL. Numerous DSL price-cut promotions over the quarter highlighted the Baby Bells' determination not to lose more ground to cable companies that are stealing away coveted voice customers.
That's not to say consumers will be seeing price cuts on their cable bills any time soon. Cable's lead in the household remains steady.
"The cable operators so far haven't taken the bait to do price cuts on their own," Strategy Analytics' Penhune said. "I still think they don't have to do it yet and want to maintain their margins for as long as they can."