July 29, 2008

Tough All Over

Verizon joined AT&T in reporting dismal 2Q broadband numbers, escalating concerns over the US broadband industry's potentially smoking brakes and sending shares of all the major telcos, cable MSOs and DBS ops notably lower amid a widespread Mon selloff. Included in the undertow: AT&T (-2.5% to hit a 52-wk low); Cablevision (-3.9%); Comcast (-3.7%) and DirecTV (-3%). Verizon added 187K FiOS Internet subs (-29% sequentially) but lost a net 133K DSL customers—the 1st such dip ever reported by a major US telco, according to Sanford Bernstein. Comcast will provide an early indication of how these results have impacted cable when it reports earnings Wed. "Although cable will likely benefit from the DSL declines, we're concerned about overall data broadband growth," wrote Collins Stewart analyst Thomas Eagan, who forecasts sequential declines in net data adds for Comcast (-33%), Time Warner Cable (-37%) and Cablevision (-25%). Although Verizon pres/COO Denny Strigl said the broadband market is definitely maturing, "it is clear that demand for higher speeds and more bandwidth is increasing." The telco's total line loss of 920K is "higher than what we had been geared for," said Strigl, and can be attributed to cable competition and wireless substitution. He said the telco's 176K net video adds (-33% sequentially) stemmed mainly from decreases in promotion, marketing and advertising, which will all ramp in 3Q. Also expected to help is FiOS TV's roll out in NYC, which began Mon in parts of each of the city's 5 boroughs. Verizon plans to pass by YE 30% of the 3mln area HHs covered by its franchise, including 2mln MDUs. While Verizon CFO Doreen Tobin touted FiOS TV-related financials, including better-than-expected cost/home passed, Sanford Bernstein analyst Craig Moffett argued: "That FiOS is already seeing a sequential deceleration is a startling development." He added that Verizon "continues to hemorrhage access lines at a stunning rate."