April 27, 2006 1:35 PM PDT

Comcast steals telecom DSL customers

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The intensity of competition between cable operators and phone companies went up a notch as Comcast reported a big boost in the number of new subscribers who switched to its cable-broadband service from DSL.

Comcast, the largest U.S. cable television operator, said Thursday when it reported first-quarter 2006 earnings that it increased high-speed broadband subscribers by 437,000. Of these subscribers, about 34 percent came from competitors selling DSL (digital subscriber line) service, compared with about 23 percent of customers a year ago, Steve Burke, chief operating officer of Comcast, said during a conference call with analysts and investors.

"We now get as many customers coming from DSL as we get from AOL narrowband," he said.

Burke suggested that customers are switching to Comcast because they are more interested in high-speed service than in price.

Over the last year, phone companies have slashed prices in an effort to win customers. AT&T dropped the price on its introductory DSL offer to $12.99, and Verizon Communications is offering its 768Kbps service for $17.99. The strategy has worked as phone companies are closing the gap between the total number of DSL subscribers and cable modem subscribers in the country.

Meanwhile, Comcast and other cable companies have held the line on pricing, and instead have increased speeds of their service.

"As the RBOCs (regional Bell operating companies) cut prices we keep focused on speed superiority and reliability," Burke said. "As consumers engage in richer Internet experiences, such as music, games and video, they should place even more value on speed."

The bundle factor
Jim Penhune, an analyst at Strategies Analytics, doesn't think consumers are switching from DSL to cable because of speeds. He believes they are switching because Comcast is able to offer them a triple-play package of services that includes video, voice and high-speed data for about $100 a month. He said that when he surveys broadband users they still report they are more interested in pricing and value than they are in faster speeds.

"I would argue that customers are switching from DSL because Comcast can offer them a low-cost phone service as part of the bundle," he said. "I give the cable companies credit for holding their ground on pricing. But I'm just not sure how compelling the speed argument is for large numbers of consumers."

Comcast also noted that the bundled package was a big factor in attracting new customers. The company added 211,000 new phone customers during the quarter, more than it had signed up for all of 2005. And in regions where Comcast sells phone service, the company added more new high-speed Internet access customers than in other parts of the country where the option to buy a package wasn't available, Burke said.

Even as they continue to lose telephone lines, the phone companies are fighting back. AT&T and Verizon are already upgrading their networks so they can add TV service to their package. And AT&T announced earlier this week it plans to boost download speeds on its DSL service to 6Mbps. Verizon offers speeds up to 30Mbps on its Fios fiber network.

Even though some DSL customers are switching to cable, the phone companies are also growing their broadband businesses. AT&T reported that for the first quarter of 2006, the number of customers for its high-speed Internet service rose by 511,000 to more than 7.4 million. BellSouth reported it added 263,000 new broadband DSL customers for a total of 3.1 million subscribers at the end of the first quarter of 2001.

Verizon hasn't yet reported earnings for the first quarter, but it did sign up a record number of subscribers in the fourth quarter of 2005.

"We are also taking customers from everyone else," said Bobbi Henson, a spokeswoman for Verizon. "There is intense competition in the market, and we are confident that many customers will choose us."

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2 comments

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What I Hate About Cable
As a Comcast subscriber, I cringe to hear how much they're making, something like 2.6 billion in free cash flow last year.

As a Comcast stockholder, bravo!

But why, oh, why, oh why, must you still charge separately for every little thing? It's a small thing, but it's annoying thing. If I need a box in order to receive the cable programming, charge me one fee, not two. $54 for programming and a box feels far less nickel and diming than $51 for programming and $3 for a box. It seems like a simple little request that has to do more with trying to seem simple and friendly and less like you're squeezing every last dollar out of us.
Posted by TV James (680 comments )
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The good and the bad
As a Comcast subscriber, I had their triple tier bundled package.
Cable TV, High Speed Internet, and the Digital Phone service.
The Digital Phone service you will find is a separate company and a separate bill. The Digital Phone service is a consumer rip off. With extremely high rates. I dropped my Digital Phone service and chose AT&T CallVantage Service. It?s much cheaper and doesn?t have any hidden costs. So I now use Comcast Cable TV, High Speed Internet, and AT&T CallVantage for my phone service.
Posted by reverend_john (9 comments )
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