IGI Consulting, Inc. Member of the IGI Group 32 Washington Street, Suite 32 Brighton, MA 2135-3356 November 3, 25 Third Quarter 25 High-Speed Access Report High-Speed Growth Is Back with a Vengeance: Telco Broadband to Exceed Cable Modems by 26! Our last quarter report noted that high-speed growth was taking its yearly hiatus for the summer. Well, the timeout is over. This quarter has proven to be the biggest growth spurt for high-speed accesses in history! The following chart shows the overall results for the quarter. It s Budget Closing Time Again! This Year Use Some of those Excess Funds in Departmental Budgets Wisely Buy Reports that Will Pay Dividends all Next Year! Information Gatekeepers Inc. Is Offering Discounts on all Multiple Report Purchases for the Next Three Months! Get the Latest Information Most Important Current Subjects FTTP, ROADMs, IPTV, VoIP, - The Telecom Market Authoritative Material All Part of the Highly Credible Lightwave Series Best Prices of the Year! And Just In Time for Budget Close-Out! Contact Us at 617-782-533 or E-mail ppolishuk@igigroup.com View Reports at 1 of 1
3rd Qtr. 25 In-Service H-S Lines 45,, 4,, 35,, 3,, Actual xdsl Lines Actual CM Lines Actual Total H-S Lines 25,, 2,, 15,, 1,, 5,, 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 2 21 22 23 24 25 More detailed charts later in the report will further explain this quarter s trend, and provide forecast information. The above chart shows clearly that high-speed access lines are in a continued growth trend. In fact, the 3 rd quarter, 25, exceeded any previous quarter for growth in total access lines. We estimate that nearly 2,5, lines of all types were added in this quarter. This has been a very active quarter for background news regarding high-speed access. Before we move to the numbers, let s review the background news, because some of these items will be driving the news for years to come. News of the HIGH-SPEED Access World Video Verizon opened its triple-play assault with its first video service on its FTTP architecture FiOS. Verizon debuted video in late September in Keller, Texas, the same city that saw the original debut of Verizon s FTTP service last year. Note however, that this is not the IPTV service that Verizon has said it will eventually make available on FiOS. It appears that IPTV may not be quite ready for prime time. Verizon offers 18+ channels on one of its more popular video packages. 25 B & C Consulting Services 2 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
Video II Verizon followed up its Keller introduction by announcing that FTTP video would be available in 21 more Texas cities by the end of 26. Texas has a statewide franchising law making it relatively easy to introduce video on the FTTP infrastructure by avoiding the need to negotiate franchises with each city. Verizon hopes to make similar announcements in other locations throughout the US. Video III SBC has just (early November) been grated a state video franchise for Texas. SBC states that it plans to offer video via its Project Lightspeed infrastructure first in San Antonio in a pilot market (where it has been field-trialing its Lightspeed architecture) in a few months and expand to twenty nearby cities in 26. The Lightspeed video offering has been planned to be IPTV. It will be interesting to see if SBC has an IPTV offering ready for commercial rollout. Price War A price war seems to have started for high-speed access. SBC started the ball rolling with an offer of $14.95/mo. for its introductory speed highspeed access service. Verizon has responded with the same priced offer for a slower service but bundled with Yahoo premium. Since SBC and Verizon really don t directly compete against each other (yet) this was a most interesting response. BellSouth has also cut its xdsl offering to $24.95. Price War II The real competitors to the RBOCs the cable companies have all responded strongly. Cox and Rogers now have $19.95/mo. offers for cable modem services. Comcast and Charter are offering service for $19.99/mo. and Time-Warner is lagging the parade with services at $29.95/mo. These prices are all substantially below the normal rates of around $45/mo. most of the cable companies were charging. In addition, many of the cable companies are offering triple plays of their own, bundling cable TV, high-speed access, and VoIP-based phone service. This makes for a real price war. Bandwidth Hogs? in what is a turnaround of sorts, several telcos and cable companies are expressing concern over their customers using high-speed accesses too much. Time-Warner has been quoted as saying that 1% of its subscribers are using 75% of the bandwidth. This hogging is attributed to the transmission of video, pictures and phone service (?). Of course, video and picture transmission take a lot of bandwidth, but VoIP does not. That sounds like sour grapes from the telcos maybe? Some of the companies are considering steps to control how their high-speed accesses are used, however there is bound to be legal and regulatory questions raised on any attempt to limit the use of these accesses. Turning back to this quarter s results, let s look first at the spectacular quarter that two of the telcos, SBC and Verizon, had. Actually, all of the telcos continued their run of great results (last quarter being something of an exception.) In addition to Verizon and SBC posting the highest xdsl gains ever for a quarter, Qwest also 25 B & C Consulting Services 3 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
posted its biggest quarter ever by a long shot, and BellSouth had one of its better quarters. The following charts illustrate SBC and Verizon s success. 3rd Qtr. 25 SBC xdsl Lines Added (and Trendline) 6, 5, 4, xdsl Lines Added 3, 2, 1, 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Quarters 23 24 25 25 B & C Consulting Services 4 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
3rd Qtr. 25 Verizon xdsl Lines Added (and Trendline) 45, 4, 35, 3, xdsl Lines Added 25, 2, 15, 1, 5, 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Quarters 23 24 25 In looking at these charts, the reader will notice that historically the 4 th and 1 st quarters are normally the best ones. If that trend continues, we should indeed see very strong results in the next six months for these two companies! The following chart illustrates the overall picture for the quarter for the major telcos and cable companies. 25 B & C Consulting Services 5 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
3rd Qtr 25 Major Providers - Cable Modems Vs. xdsl 1,4, 1,2, RBOCs' xdsl Additions Major Cable Cos' CMs Additions Linear (Major Cable Cos' CMs Additions) Linear (RBOCs' xdsl Additions) 1,, Added H-S Lines per Quarter 8, 6, 4, 2, 3Q 23 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 24 25 This chart dramatically illustrates why the telcos are rapidly catching up with cable in high-speed accesses. The trend lines on the chart tell the story. The telco trend line is decidedly positive while the cable trend line is negative. We were, perhaps, the first analysts to forecast this turn in events, back when the cable companies were still going strong, and had a two to one lead over the telcos. That cable lead has shrunk to only about 58% now. We are forecasting that the telcos will over take cable before the fourth quarter of 27. The following chart illustrates this as well as showing how the actual in-service highspeed accesses are tracking against our forecast. 25 B & C Consulting Services 6 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
3rd Qtr. 25 Actual vs Forecast of H-S Lines 45,, 4,, 35,, 3,, xdsl Lines New IGI Forecast Cable Modems New IGI Forecast Actual xdsl Lines Actual CM Lines 25,, 2,, 15,, 1,, 5,, 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 21 22 23 24 25 26 27 It is evident that, if the above trends continue, the telcos will over take the cable companies even before we had forecast likely by mid-26! The telcos continue competing on price and packaging and winning big! As noted above, the telcos are offering introductory packages in the very low teens of dollars a month. (Why would anybody buy dial-up, when you can get high-speed access at this price?) They are also offering the big package bundled mobile, data, voice and video. The cable companies are beginning to try to compete on these terms. The cable companies appear to have been trying to compete with feature differentiation adding speed, mainly but in a commodity market, features really do not count. Those who would buy for features (speed) did so early in the growth curve. Those who are buying now will buy as you select any commodity (assuming availability of options) on price and packaging. The next shoe to drop from the telcos is (already has in some cases) FTTP, and its cousins with video, data (very high-speed) and voice. The cable companies have begun to respond to this with higher speeds in fact, as high as the FTTP speeds but do they really understand the points made above about commodity purchases? (Our latest reports for IGI FTTP Going Strong in 25! and IPTV The New 25 B & C Consulting Services 7 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
Light Sword of the RBOCs, detail the FTTP threat to cable companies and the way IPTV will help the RBOCs.) If these trends continue, there are indications of a significant defeat for the cable companies. There has been much speculation about the cable companies ability to take significant market share away from the telcos in voice, but watching how the telcos are now making up this huge deficit in high-speed accesses, one has to ask if the cable companies are really up to taking on the major telcos. The following chart shows actual high-speed access lines (by xdsl and cable modem) versus forecasted growth. 3rd Qtr. 25 Actual vs Forecast of H-S Lines 8,, 7,, 6,, 5,, xdsl Lines New IGI Forecast Cable Modems New IGI Forecast Total HS Lines NewIGI Forecast Actual HS Lines Actual xdsl Lines Actual CM Lines Linear (Actual HS Lines) Linear (Actual CM Lines) Linear (Actual xdsl Lines) 4,, 3,, 2,, 1,, 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 21 22 23 24 25 26 27 As you will see, while xdsl continues above forecast following the parabolic forecast line, cable modems are below the linear forecast line, and are falling further below, what was considered at the time, a relatively conservative forecast (at least near-term.) 25 B & C Consulting Services 8 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
The household penetration rate of high-speed access lines is nearing 4%. It is actually at 39.28% and will be certainly well past 4% by the next report. This is a remarkable penetration rate, considering that only a few years ago (actually, when we started doing these reports on high-speed access lines) the penetration of Internet-capable computers was only about 6%. Now we have 4% of households not only having internet ready computers, but actually subscribing to high-speed access! The following penetration chart illustrates the penetration versus our forecast, and a linear growth line. As the reader will see, the actual growth is very near our forecast, and easily is exceeding the linear growth trend. Note that this forecast suggests that by 29, high-speed accesses will be available in 8% of our households. This result requires a concomitant growth of household PCs to around 85%. (See our latest market report The Market after the Mergers The Telecom Economy in mid-25, for details of the forecast.) 3rd Qtr 25 Household Penetration of H-S Accesses 9.% 8.% 7.% HH Penetration New Forecast HH Penetration Actual Linear (HH Penetration Actual) 6.% 5.% 4.% 3.% 2.% 1.%.% 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 21 22 23 24 25 26 27 28 29 21 25 B & C Consulting Services 9 of 3rd 1Qtr. 25 HIGH-SPEED Access Report
Growth Detail by Company The following chart illustrates the major cable companies and telcos results for the quarter and year. Major Cable Companies - CMs Added Total 4 24 24 24 25 25 Total 25 1st Half 3Q 4Q Total 1Q 2Q 1st H 5 3Q Charter 1,83, 18,5 1, 2,11,5 94, 43,8 2,149,3 98,4 Comcast 5,991,1 549,1 437, 6,977,2 414, 297, 7,688,2 437, Rodgers 851,1 43,3 57, 951,4 51,6 33,4 1,36,4 53,3 Cox 2,239,13 184,446 125, 2,548,549 177, 15, 2,875,549 15, Time 3,644, 168, 197, 4,9, 29, 21, 4,419, 234, Warner Totals 14,528,33 1,53,346 916, 16,497,649 945,6 725,2 18,168,449 972,7 Major Telcos - DSLs added Note Cox estimated for 3Q5 Total 4 24 24 24 25 25 Total 25 1st Half 3Q 4Q Total 1Q 2Q 1st H 5 3Q BellSouth 1,738, 134, 224, 2,96, 253, 124, 2,473, 25, Bell Can. 1,67, 96, 91, 1,857, 91, 92, 2,4, 16, Qwest 853, 12, 11, 1,65, 85, 68, 1,218, 15, SBC 4,277, 42, 425, 5,14, 54, 36, 5,968, 528, Verizon 2,944, 39, 36, 3,559, 385, 278, 4,222, 389, Totals 11,482, 1,43, 1,156, 13,681, 1,318, 922, 15,921, 1,378, Total 26,1,33 2,96,346 2,72, 3,178,649 2,263,6 1,647,2 34,89,449 2,35,7 CM+xDSL 25 B & C Consulting Services 1 of 3rd 1Qtr. 25 HIGH-SPEED Access Report