Q1 U.S. Telcos Raise Prices, Projected to Beat Cable

Telcos in the U.S. captured 55% of high speed net adds in Q1, Tom Seitz of Barclays/Lehman estimates. UBS believes Verizon adds should remain flattish sequentially at 217K as 295K FiOS adds offset the 78K loss expected in DSL. UBS expects Verizon to reach 2.2M video subscribers, or 22.2% penetration of homes open for sale. UBS sees Comcast at 236K, Time Warner at 141K, Qwest at 65K, and the smaller U.S. carriers about about the same as earlier quarters.

Telco share is up from 46% in 1Q08, a remarkable turnaround. In one recent quarter, Comcast added more data customers than all telcos put together. My guess is that the recession drove more customers to DSL at $15-30 rather than cable at $30-50. Cable's response to the recession has been to quietly promote their less expensive offerings, but mostly they are looking for $40-55.

Perhaps trying to get in before the new FCC chair takes over, AT&T raised DSL prices 10.5% in the quarter, Seitz calculates. AT&T's low end DSL price went up by 33% from $15-$20. Verizon raised FIOS prices 3% to 7%, but the effect of promotions brought DSL down 8.6%.

Seitz also sees telco TV adds at 565K while cable drops 384K. I believe this the predictable result of telcos as new entrants in the TV market, where 10-20% of customers will likely shift because they hate their current provider. That's similar to the pattern we saw when cablecos came into the voice business, quickly grabbing 10-20% of customers. Cable voice growth is continuing at 2M/year while telcos are losing 5-10M as the historic change to wireless continues.
Written by Dave Burstein


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