DSL gaining at cable's expense?

The broadband war between phone and cable companies may be entering a new phase, according to subscriber growth numbers disclosed in a pair earnings reports.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
2 min read
The broadband war between phone and cable companies may be entering a new phase, according to subscriber growth numbers disclosed in a pair earnings reports this week.

AOL Time Warner's Time Warner Cable division on Wednesday reported 170,000 new broadband subscribers for the quarter, about 30,000 short of Wall Street expectations. AOL Time Warner executives blamed the slowdown to "seasonality."

On the other side of the fence, phone giant SBC Communications on Thursday also offered analysts a surprise, beating expectations by reporting 304,000 new digital subscriber line (DSL) customers during the quarter ending June 30.

Analysts called the numbers a shock because DSL providers have historically shown sluggish broadband uptake compared with cable companies.

"It's a monster number and it can only be bad for cable," said Paul Kim, a research analyst at Kim & Company.

The big question in the minds of analysts is whether this quarter fuels theories that cable modem additions are on the downswing while DSL begins to gain ground. No one can say until other cable giants such as Comcast and Cox, and the remaining Baby Bells such as Verizon report their results.

Verizon, the second largest Bell DSL provider, will report earnings July 29. Cox Communications will report on July 30, and Comcast, the nation's largest cable modem provider, will report on July 31.

But if the trends remain consistent, the signs may point to a shift in the broadband landscape.

"If you look at growth curves, we might be further along the steep upslope of DSL growth now, said Mike Paxton, an analyst at In-Stat/MDR. "Because cable is more mature, the growth curve is going to be flatter."

Aggressive marketing may be contributing to DSL's recent upswing. Baby Bells such as SBC, Verizon and BellSouth have introduced price cuts for as low as $29.95 a month for a limited time in hopes of gaining new subscribers.

These discounts are not helping the Bells make more money. In fact, DSL gains were one bright spot in an otherwise sullied quarter for SBC, which reported declines in profits, revenue and telephone subscribers from last year.

The move to add DSL subscribers is a defense against cable companies that now offer broadband access bundled with video and phone services. Realizing they have no video offering to compete with cable, SBC and Qwest Communications inked deals with EchoStar's Dish Network to bundle into their service package for phone and data services.

For now, cable leads DSL, based on public information released by the top service providers. But the Baby Bells are beginning to show signs that the game is not lost.

"We eventually think DSL will catch cable, but that date is three to four years away," In-Stat/MDR's Paxton said. "My take on the two different reports is there's still a lot of growth occurring for broadband."