U.S. Triple-Play Connection 3Q07 Service Provider Analysis

This IDC update analyzes the competitive positioning of the top 9 U.S. communications service providers delivering consumer revenue connections (CRCs) in 3Q07. Within the tracking of the nine service providers, several key metrics demand scrutiny:

• Cable operators lost net video subscribers for the second quarter in a row. There was general weakness across the entire group, but Time Warner Cable stands out with its loss of 87,000 net basic cable subscribers, which equates to 64% of the total 134,000 subscribers lost by the group. Telcos continued to consistently add video subscribers, and a significant change occurred ? while net adds in past quarters were driven primarily by satellite resales, in 3Q07, almost half of the 576,000 new net adds came from FiOS or U-verse video.
• After showing signs of stabilizing their primary retail local voice subscription bases, Verizon and AT&T simply imploded in 3Q07. Together, the two carriers lost almost 1 million primary retail consumer voice lines, and the top 4 telcos lost over 1.2 million subscribers, after previous losses of less than 1 million in the first two quarters of 2007. The cable multiple system operators (MSOs) followed up two subsequent 1 million?plus net voice gains in 1Q07 and 2Q07 with 921,000 net voice adds in 3Q07. The fact that cable gained under 1 million subscriptions, while telcos lost over 1 million subscriptions in 3Q07 after two quarters of the opposite trend, points to a potential lag in disconnect and connection subscription timing. If this trend holds, we can anticipate that next quarter's telco net voice losses will be lower.
• Broadband net adds were fairly even in 3Q07, with telcos adding 860,000 net adds and MSOs adding 870,000 new subscribers. This is the second consecutive quarter in which broadband net adds have been below the 1.8 million to 2 million net-addition threshold that was typical for over a year. It is clear that the appetite for new broadband subscriptions is slowing as the market exceeds the 50% household penetration rate. This creates a dynamic that compels broadband service providers to move away from customer acquisition strategies that focus on the nonbroadband user or nonbundler and forces them to engage in attempting to churn competitors' bundles, which is the equivalent of trench warfare applied to the communications space ? difficult and draining but essential to gaining and maintaining market share.