An Ignoble Experiment

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The second quarter has always been a time when service providers lose broadband subscribers, but a series of new speeds and pricing promotions helped drive up their subscriber bases and offset declines in legacy voice and DSL services. In our quarterly earnings wrap, we examine the broadband growth trends of all of the major U.S.-based service providers.

At the two largest U.S.-based telcos--AT&T and Verizon--the story was about driving customers off of legacy DSL and attracting new subscribers to their next-gen U-verse and FiOS broadband platforms.

AT&T added 641,000 U-verse broadband subscribers in the quarter to reach a total of 9.1 million subscribers. However, it had a net loss of 61,000 wireline broadband subscribers. U-Verse high-speed internet customers now represent 55 percent of all wireline broadband customers compared with 50 percent in the year-ago quarter.

Likewise, Verizon reported it added 161,000 net new FiOS Internet connections. In addition to signing up new customers in areas where it has built out its fiber to the home (FTTH) network, Verizon converted 86,000 of what it calls "chronic copper" customers, or those customers to whome it had to deploy multiple service calls, to FiOS.

Fran Shammo, CFO and EVP of Verizon, said during Oppenheimer's 16th Annual Technology, Internet & Communications Conference in Boston that it may exceed its 300,000 subscriber target of transitioning customers from copper to FiOS by the end of this year.

It should be noted that as more customers migrate to FiOS and U-verse, AT&T and Verizon lost 61,000 and 116,000 DSL subscribers, respectively. Neither telco broke out how many of their customers migrated over from DSL or churned to a cable operator.

Speed was another factor. With Google Fiber driving the utility of higher bandwidth into the consumer's broadband consciousness, AT&T and Verizon introduced a series of new speed tiers.

After months of speculation, AT&T unveiled a 45 Mbps U-verse service--initially in California and Nevada. During the Q2 earnings call, AT&T CFO John Stephens said that after starting with 45 Mbps, it will then progress to 75 Mbps and eventually to 100 Mbps speeds.

Following up on its 300 Mbps Quantum offering it introduced last year, Verizon launched a 500 Mbps tier. Eligible residential subscribers can get the new speed offering as part of either a double-play bundle for $309.99, or a triple-play bundle for $329.99, under a two-year agreement.

Broadband additions were not universal across of the telcos. As it forecast at the end of the first quarter, CenturyLink lost 8,400 broadband subscribers, which it said were "due to typical seasonality and lower than expected indirect sales."

Like AT&T and Verizon, CenturyLink is experimenting with higher speed FTTH.

CenturyLink also began a pilot deployment of a 1 Gbps-capable FTTH network in Omaha, Neb., by replacing an existing HFC-based network with fiber. However, a number of users in Broadband DSL Reports' user forum who have been converted to FTTH say they can currently get just 40 Mbps.

Outside of the top three telcos, Frontier Communications and Cincinnati Bell also saw some decent gains during the quarter.

Driven by its Simply Broadband offerings, Frontier added 29,500 new DSL customers, ending the quarter with a total of 1.8 million broadband customers. One of the key points of Frontier's growth was an aggressive advertising campaign touting its two broadband packages: a $19.99 broadband basic offer that requires an accompanying phone line and its standalone $29.99 Simply Broadband product.

"Customers love the simplicity, the value and the long-term certainty of honest straightforward pricing without the surprises of add on fees and [sticker shock] that follows the end of short-term promotional pricing offered by our competitors," said Maggie Wilderotter, CEO and Chairman of Frontier, during the Q2 earnings call.

Frontier is also being aggressive in trying to win over cable customers who don't like how cable is tacking on various fees for their broadband connections. In an effort to lure dissatisfied cable customers, particularly Time Warner Cable customers in Buffalo, N.Y., the telco launched its "Goodbye Time Warner" ad campaign.

Cincinnati Bell may have had modest gains of only 6,100 Fioptics FTTH broadband subscribers, but the telco said that in areas where it has converted customers to FTTH churn is only 1.6 percent. At the end of the quarter, it had 67,000 Fioptics broadband subscribers and 63,000 video subscribers, up 42 and 36 percent, respectively.

For a detailed look at how U.S. wireline providers performed during the second quarter take a look at our new feature, Grading the top 13 U.S. wireline telcos in the second quarter.--Sean

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Today's Top Stories

1. Verizon's Shammo: We'll exceed 300,000 FTTH migrations in 2013, improve wireline margins

By Sean Buckley

Comment |

Verizon Communications (NYSE: VZ) continues to make progress with its copper to fiber migration, potentially surpassing its initial 300,000 customer goal for 2013.

Shammo (Image source: Verizon)

"The migration of copper customers into FiOS where we have FiOS and shutting the copper down, and that is a program we continue to do," said Fran Shammo, CFO and EVP for Verizon during Oppenheimer's 16th Annual Technology, Internet & Communications Conference in Boston. "Our target was 300,000 this year and we'll probably exceed that customer target of customers moving off copper to FiOS."

Verizon appears to be on track with its copper to fiber transition.

During the second quarter, the telco converted 86,000 customers and over 169,000 in the first half of this year. One of the benefits of the copper-to-fiber migration is that it enables those customers to purchase higher broadband speeds and TV services.

Verizon is also offering its wireless-based Voice Link voice service in certain areas of its footprint as a complement to the migration process.

In addition to areas such as Fire Island, N.Y., a summer island community whose copper network was destroyed by Hurricane Sandy, the telco is offering the service in other areas as a complement to copper-based voice and wireless service.

Shammo said that current regulations require them to offer the Voice Link service in tandem with copper-based voice.

"We actually offer it side by side with copper because there are areas where we still have to offer copper voice and we offer Voice Link as well and we offer wireless on top of that," he said.

The migration may be a way to upsell new services to copper-based customers, but Verizon faces the ongoing challenge of improving wireline margins.

Shammo said although wireline margins are still low, new products such as its Redbox initiative, Digital Media Services and its acquisition of Hughes Telematics for M2M applications create a foundation for new growth in the segment.

"Redbox, Digital Media Services and Hughes Telematics are all negative on wireline right now in our wireline segment," he said. "As I look at those three going into next year, they will start to turn and start to contribute."

Besides the new services, Shammo added that the labor contract agreement it made with its wireline unions "will also start to benefit us next year."

For more:
- listen to the webcast (reg. req.)

2. CenturyLink begins 1 Gbps ad campaign in Omaha, but actual speed, availability issues reported

By Sean Buckley

Comment |

Click here to view the video.

CenturyLink (NYSE: CTL) has launched an advertising campaign for its 1 Gbps fiber to the home (FTTH) service pilot in its Omaha, Neb., market.

In an ad on their website and this video, the service provider talks about how its 1 Gig Broadband service is "a revolutionary new network CenturyLink is bringing to Omaha."

Residents can type their address into a web portal to see if they are eligible to get the service.

While the telco is touting the 1 Gbps speeds, it appears that a number of users who have been converted to fiber can't get anywhere near that speed. According to a subscriber in Broadband DSL Reports user form that was updated to fiber, they can only get 40 Mbps.

Unlike the Greenfield deployments being done by Google Fiber (Nasdaq: GOOG) and various municipalities, CenturyLink was able to leverage existing fiber network infrastructure that it used to deliver service.

When it begins offering the 1 Gbps service, eligible customers will pay $150 for a standalone data service and $80 when they purchase a triple play bundle.

However, the reality is that outside of this pilot the majority of CenturyLink's customers can only today get up to 3 Mbps DSL.

For more:
- Broadband DSL Reports has this post

On the Hot Seat: CenturyLink's Beal sees value in 1 Gbps fiber

Read more about: CenturyLink
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3. Windstream appoints Matt Preschern as its new CMO

By Sean Buckley

Comment |

Windstream (Nasdaq: WIN) put another element into its growing business services management team by naming Matt Preschern as its senior vice president and enterprise chief marketing officer.

Preschern (Image source: ABM)

In his new role, he will oversee the telco's brand management, advertising, strategic marketing, product development and marketing, pricing and channel marketing.

Preschern brings plenty of marketing experience to Windstream. He most recently served as the VP of marketing for IBM's NA Business Consulting Services division. During his tenure at IBM, Preschern drove a number of the company's growth initiatives, such as Big Data and Analytics and Smarter Commerce.

His appointment comes at a time when Windstream is vying to become the fourth largest enterprise-focused service provider, competing with its three larger telco rivals AT&T (NYSE: T), Verizon (NYSE: VZ) and CenturyLink (NYSE: CTL).

Windstream has been making considerable progress in building its business services customer base. In the second quarter, business service revenues rose 2 percent year-over-year to $913 million. Business customers that generate $750 or more in revenue a month grew 6 percent year-over-year, while average service revenue per business customer per month rose 7 percent over Q2 2012.

For more:
- see the release

4. Equinox starts offering dark fiber in Charlotte, begins Georgia route

By Sean Buckley

Comment |

Equinox Global Telecommunications, a privately-held competitive fiber provider, has begun taking dark fiber orders on its Charlotte, N.C., route while continuing to expand its network in Georgia.

In Georgia, it plans to begin construction on new network routes that will reach from Atlanta to Macon and Macon to Columbus. It expects the routes to be completed over the next two years.

The service provider said that these two network initiatives will fulfill the "need for higher bandwidth speeds in the business, education and government sectors."

Along these routes, Equinox will provide a number of services, including dark fiber, Gigabit Ethernet, wavelength services and cloud. It will also provide additional network maintenance and monitoring, NOC services and technical support and professional services including inside and outside plant design and installation.

Equinox's expansion could have a clear application with a number of carrier customers, including wireless operators such as Verizon Wireless (NYSE: VZ), which has cited interest in using dark fiber solutions for wireless backhaul.

Fran Shammo, CFO of Verizon, said during the Oppenheimer 16th Annual Technology, Internet & Communications Conference in Boston that they are considering dark fiber.

"We are looking at that as a possibility and we're going to RFP it and we'll see where we'll go with that," he said, adding that dark fiber is "more from a backhaul perspective versus than a Fiber to the Cell perspective because you need the backhaul capacity."

For more:
- see the release

Related articles:
The 10 hottest wireline technologies in 2013
Verizon's Shammo: We'll exceed 300,000 FTTH migrations in 2013, improve wireline margins

Read more about: Verizon, Wireless Backhaul
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5. KPN, Telecom Austria wholesale partnership to reach 173 PoPs

By Sean Buckley

Comment |

KPN and Telekom Austria have entered a wide-ranging wholesale partnership that will create a joint footprint which includes 173 points of presence (PoPs) within 35 countries.

Targeting a mix of international wholesale carriers and large business customers, the two service providers will interconnect a host of Ethernet, IP VPN, Wavelength and IPT services.

The service providers will establish a network connection in Frankfurt and a backup link in Vienna.

This combined IP backbone will connect to Europe's four key Internet Exchange points: Frankfurt, London, Amsterdam and Paris. It will also provide reach into North America.

Under the terms of the agreement, the two telcos will have common marketing and sales activities.

One of the other interesting elements is that Carlos Slim's America Movil (NYSE: AMX) conglomerate owns a minority stake in both companies. Earlier this week, America Movil bid $9.6 billion to acquire the shares in KPN it does not already own.

For more:
- see the release

Related articles:
Alcatel-Lucent, Telekom Austria demonstrate 1 Gbps over copper in G.fast trial
América Móvil free to raise stake in KPN

Read more about: Wholesale, Kpn
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Feature

Grading the top 13 wireline service providers in Q2 2013

By Sean Buckley

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