Can AT&T and Verizon install their fiber optic networks fast enough to offset the quickly declining revenues from their residential phone service? And, is the cost of deployment worth the effort?
Can they maintain their growth rates for the “up to 6 Mbps” xDSL broadband in the face of the cablecos ramping up their broadband speeds to 100 Mbps beginning this year? Based on statements from leading cable TV company executives, it appears the cablecos will be offering 100 Mbps to all the residences in their footprints long before AT&T and Verizon can get their fiber networks running past the homes in their footprint.
A new forecast from Information Gatekeepers (IGI) spotlights the quandary US telcos face. ‘For several years, the telcos have been installing and placing in-service high-speed accesses (xDSL) as fast as the market demanded them,’ said IGI president Paul Polishuk. ‘In that environment the telcos were adding approximately five million new high-speed customers per year. We are now entering a period that the telcos will be limited by the resources available to cutover the new advanced, high-speed services such as FiOS and U-verse. This will present a real test of will for the telcos’ management as they watch their wireline revenues decline while they continue to pour billions of dollars into the advanced networks, but are unable to turn them into profit centers as soon as they would like.’
The chart below compares the cable companies with their cable modems to the telcos with xDSL and, recently, their advanced high-speed technologies (FiOS and U-Verse.) Note that by the end of this period a saturation is being reached, when almost all home PCs are equipped with one or the other of these technologies. Also, note that telcos catch cable companies in 2011. IGI had previously forecast a much earlier catch date (2008) when the telcos were growing faster.
IGI’s chief analyst and forecaster Clif Holiday, the report’s author, said, “The time needed to place these technologies in service at each customer’s house is much longer than with the more standard xDSL, and the ‘back office’ activities are much more involved. We are seeing this issue first at Verizon, where their cutover requirements are now limiting their high-speed gains to about 75% of what they were previously achieving. Verizon has announced that they are moving personnel to address this, but they still have limits. Our revised forecast going on out to 2012 suggests that the telcos in total will only be adding about 1 million high-speed lines per quarter due to this issue.
As a result, the ‘catch-up’ date for telcos to match the cable companies in high-speed accesses is now much later (2011 as opposed to our previously forecast 2008.).
Polishuk said this is a major change in direction for the telecom industry, as they de-emphasize growing xDSL accesses, and concentrate on selling and installing the new technologies. This slowing of adding replacement revenues for loss of regular telephone lines may have far reaching consequences as the carriers try to deal with the financial impacts of the lower level of profitability of the new technologies in the face of ongoing investment requirements.
In contrast to Verizon and AT&T, Qwest, the third largest US telco, is counting on speeding up its existing network and on Internet-provided video entertainment to fill its pockets. It has decided not to deploy a fiber network to or near to the home.
Looming over all the US telcos’ future is new technology from the cable TV services that will allow them to offer speeds up to 100 Mbps over the cablecos existing network wires.
This IGI chart shows how the new, advanced access technologies are going to overshadow the older xDSL. By 2012 there are almost half as many of the new technologies installed as the old, in a much shorter time frame. In a very few years after this period the new technologies will become predominant. However, this growth of advanced technologies is less than what is being lost by lack of emphasis on xDSL additions.