Point Topic, a UK research firm, tracks global broadband growth by country. For the quarter ending in March, the world had almost 300 million broadband subscribers.
One of the salient points of their survey is that broadband subscriptions in the US are growing slower than most other countries, at about 5% from December 2006 to March 2007. There is some sense to this since the US is the largest single broadband market with a total of 60.4 million customers. China is a fairly close second with 56.3 million and a growth rate of closer than 10%.
What is somewhat surprising is that the growth in certain “old world” European countries is so robust. German’s number was up 8% between the two quarters, while France’s number jumped 10%.
But, for US broadband providers, primarily the cable and telecom companies, the only figure that matters is the anemic 5% growth in this market. It means that the battle for each consumer is more hard fought. There is not much of a “rising tide”.
Verizon recently made a big deal of its fiber system, Fios, getting its one millionth customer. Of course, it will have to do a good deal better than that to pay back the $18 billion it is spending to build the infrastructure. The company projects it will have six million to seven million subscribers by 2010.
But where will all of these new customers come from? Verizon is fundamentally claiming that Fios will have 10% of the entire US broadband market. Since the service does not have a national footprint, the penetration will have to be much higher in the company’s service area.
That leaves investors with the question of whether the telecom company can take this number of customers from cable companies which are already entrenched with their VoIP, TV, and broadband services. The alternative is that Verizon will simply be converting its old DSL base to a newer, faster platform. It would seem that Verizon DSL customers would be the easier group to attack. They are already part of the Verizon family, and selling them on faster broadband service and internet-delivered TV should be a path of less resistance than poaching cable customers.
But, converting your own customers is not an ideal way to make more money. A fiber customer may pay more than one with DSL, but the cost of building the system to get him is mammoth.
Verizon and AT&T are trading near multi-year highs. And, the trend is not their friend.
Douglas A. McIntyre can be reached at douglasamcintyre@247wall st.com. He does not own securities in companies that he writes about.
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