Posted by Carl WeinschenkThe competition between cable and telephone companies continues to accelerate, and business and residential users continue to be the big winners. While this is not a new trend, it is comforting to see that it is in full force in the new year.
Verizon said this week that it has more than doubled the speed of its digital subscriber line (DSL) service to 7 Mbps at 400 locations in the United States, and that the increased throughput will be available nationwide by the end of the year. The goal, this Philly.com story says, is to increase interest in DSL to combat cable gains.
Verizon DSL sales had fallen off a cliff, dropping from 301,000 in the third quarter of 2006 to just 56,000 during the third quarter of this year. Part of that drop can be attributed to the transition of many customers to the company’s faster FiOS fiber service, of course. The company apparently figures that there is enough of a market at the lower end of the speed spectrum to have two distinctly different broadband product families.
Perhaps the most striking example of how the deck chairs have been rearranged during the past decade is the fact that Comcast now says that it is the fourth largest telephone service provider in the United States. Wired describes the CES keynote delivered on Tuesday by CEO Brian Roberts. The next iteration of the industry’s Cable over Data Service Interface Specifications, DOCSIS 3.0, will be available in some markets by year’s end. The story details innovations planned by the company, including ultra fast movie downloads and Tru2Way, an open access cable converter. The company will embed the circuitry into many devices, the story says. Necessity — in the form of innovation — apparently truly is the mother of invention.
This is an interesting look at how the telcos are gearing up for competition from an analyst with PDS Consulting. The writer says that Verizon is importing executives that have “marketing-oriented, hyper-competitive” attitudes from the its wireless arm. Likewise, AT&T’s merger with BellSouth has given the company more control over the wireless company, formerly called Cingular, that had been owned by the two before the merger. The post ends with examples of aggressive bundling initiatives from each company.
Not surprisingly, analysts find that the competition is leading to increased spending and more expansive services. This In-Stat press release hypes a study that says 90 percent of cable systems now offer high-definition television. This, the commentary says, likely was driven by the “stiff competition” offered by telco and satellite video services. The firm found that 84 percent of systems offer 750 MHz or more of bandwidth, OpenCable Application Platform (OCAP)-based set top boxes are beginning to be deployed and that 42 percent of cable television subscribers also subscribe to broadband services.
The reason for the desire to engage its customer base is is clear: The survey found that 54 percent of the cable systems said that the telephone company was offering service somewhere in their footprints. The release didn’t describe the average size of the telco offerings within their service area. Regardless, the fact that there are telco competitors in more than half of the operators’ areas is extraordinary.
The scrutiny that the competition causes is clear in this Telecosm post. Ike Elliott says that Verizon and AT&T won the battle in 2007. The two telcos’ stock price rose more than 15 percent, while Comcast’s was down 35 percent — perhaps the driver of Roberts’ service announcements at CES — and Charter performed at an even lower rate. The reasons are simple: Cable is losing video customers and its broadband progress is middling. Its success in voice, the writer says, is not enough to offset these twin sources of bad news.
itbusinessedge.comAlso Read These ArticlesWall St. connects with telcos and cableOf course, telecom and cable stocks have been solid performers this year for other reasons. Investors appear to be recognizing that the wireless units of traditional phone companies are doing well. And many cable firms have been reporting healthy gains in subscribers for their Internet phone and digital cable offerings.
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| Shares of Baby Bells Verizon and AT&T have outperformed the stocks of the top two cable companies so far this year. |
Shares of Dow components AT&T (Charts, Fortune 500) and Verizon (Charts, Fortune 500) are up 11 percent and 13.5 percent this year while shares of the top two cable firms, Comcast (Charts) and Time Warner Cable (Charts), which is a majority owned subsidiary of CNNMoney.com's parent company Time Warner (Charts, Fortune 500), have gained just 3 percent and 1 percent respectively. Time Warner Cable began trading as a separate stock on a so-called "when issued" basis in January and made its formal debut in early March.
With all four companies set to report their latest financial results in the next two weeks, will the telecoms continue to outperform cablers?
AT&T, Comcast and Time Warner Cable are all expected to post robust gains in profits and earnings for the second quarter but a lot of this growth is driven by acquisitions.
Ma Bell, which will report its second quarter results on July 24, completed its purchase of BellSouth in December. Comcast and Time Warner Cable teamed up in a deal to split up the assets of bankrupt cable provider Adelphia Communications earlier this year. Comcast's earnings are due out on July 26 while Time Warner Cable will report its results on August 1.
Verizon, however, is expected to report an earnings decline of 3 percent and revenue increase of just 1.3 percent for the second quarter. It will release its results on July 30.
The stock did get a lift recently due to speculation that British telecom Vodafone, which is a minority owner in Verizon Wireless, was considering a takeover of Verizon. Vodafone has denied the rumors.
Despite the sluggish growth projection for Verizon, Cowen & Co. analyst Thomas Watts is predicting solid results in this quarter and the next few quarters for Verizon on other metrics.
In a recent research note, he thinks the company is doing a good job of getting customers to sign up for newer services, most notably its FiOS video product that competes most directly with cable.
"[Verizon is] focused on transforming its revenue to include a greater proportion of higher growth services, such as wireless, broadband, and video, and a decreasing percentage from traditional telephony," Watts wrote in his report.
Watts also wrote that AT&T should benefit in the second quarter from healthy increases in digital subscriber line (DSL) Internet access customers as well as strong demand for AT&T's wireless services.
Although sales of Apple's (Charts, Fortune 500) iPhone, which AT&T is the exclusive carrier for in the U.S., won't have a huge impact on second quarter sales since the phone was released just days before the quarter ended, Watts wrote that AT&T may have added as many as 200,000 new subscribers in the quarter due to the iPhone and that this bodes well for the rest of the year.
money.cnn.com
