DSL Surge Still Can't Catch Cable Modems

The ferocious effort by U.S. telephone companies employing DSL to catch up with cable broadband installations has brought DSL additions neck-and-neck with cable additions, according to a report released Wednesday.

The Leichtman Research Group reported that broadband installations now total more than 33.2 million with 8.6 million subscribers added in 2004. In spite of a recent surge by DSL, cable held on to its overall lead with 19.9 million subscribers. DSL has a total of 13.3 million subscribers.

"It's a horserace now, but cable has a 10-length lead," said Bruce Leichtman, the market research firm's president and principal analyst, in an interview. "DSL is now running at par with cable. And, in the future, I [expect] the 50-50 split to continue."

Leichtman said cable jumped out in front of broadband installations a few years ago, while the telephone companies hesitated--they didn't want to impact their dial-up and T-1 connections. And he noted that DSL margins are generally lower than cable broadband margins.

Cable built up a big lead and Leichtman doesn't see any technology developments that could change the current landscape of broadband installation. Leichtman said in the early days of broadband installations, cable had the advantage of viewing broadband as "a green fields opportunity." There was no cable service to cannibalize by installing cable broadband.Calling the installation of more than 33 million broadband additions in a few years "astounding," Leichtman said that only one other technology--DVD--has been introduced and accepted more quickly. "Now retention is the key in broadband," he said.

In Leichtman's survey of the 20 top broadband providers representing 95 percent of the market, he said cable companies netted 51 percent of broadband additions in 2004, adding a total of 4.4 million subscribers compared with 4.2 additions in 2003.

DSL net additions were more than 43 percent higher than the previous year, according to the Leichtman report. SBC Communications, with 1,588,000 net additions, and Verizon Communications, with 1,240,000 million adds, led in DSL additions. SBC has a total of 5,104,000 subscribers, while Verizon has 3,559,000 total.

Comcast led cable broadband providers with 1,707,000 net additions in 2004--way ahead of runner-up Time Warner Cable, which added 685,000 new broadband subscribers, bringing its total to 3,913,000. Comcast has 6,992,000 broadband subscribers.

Leichtman noted that telephone companies fared well in the fourth quarter. "The fourth quarter of 2004 was the best quarter ever for DSL providers, with DSL adding nearly 1.16 million net additional subscribers," he said.0