Telco Internet losses a fluke or a harbinger of things to come?

Aug 22 2012
By Fred Hoot - Google+

I see a trend that I expected years ago.  The telephone companies should have been out of the landline Internet business before now, at least a large portion in the urban areas.

The Facts

Cable companies have 11 million more subscribers than telephone companies.

Cable companies have added 330,000 more subscribers since Q2 in 2011.

Telephone companies have lost 70,000 subscribers since Q2 of 2011.

This data is substantiated by the Leichtman Research Group.  In fact, in all the time Leichtman has been keeping track of this data, this past quarter is an historic low for the phone companies.

Possible Reasons for Telco Internet Loss

There are many possible reasons for the loss of landline based telcos in the Internet business.

One big reason is speed.  Cable Internet is much faster than DSL.  It is also growing in speed.  Standard cable performance generally runs around 30 mbps performance.  Here is a speed test performed on a typical triple-play Comcast Internet account.

DSL services typically run slower than 10 Mbps.  Even slower speeds may be the maximum, depending on the distance you are from the CO (Central Office).  It is still possible that DSL will not even be available if you are too far away.

Another reason is based on demographics.  Cable companies have generally “cherry picked” (i.e. picked the easy stuff) dense population centers where they can maximize their ROI (Return On Investment).  They generally leave the less dense and rural areas to the local telephone companies.

A third possible reason is waning interest from the large telephone companies.  AT&T is pushing its legacy DSL customers toward their own cable Internet.  Verizon Communications dumped a lot of its landline business onto local telephone companies.  FairPoint Communications picked it up but had an extremely difficult time servicing the customers and was fined $7 million.

Reliability is yet another reason for people migrating over to cable Internet.  Much of the copper in the streets was installed a long time ago.  I know some communities that still have 100-year old lead-sheathed cable installed underground feeding their buildings.

A lot of the older cable buried underground and even strung on telephone poles has been weathered so much that the outside protective sheath and even the inside insulation has cracked and deteriorated.  Many people still suffer from degradation or even loss of their Internet service every times it rains and the water works its way into the cables, and this problem is world-wide.

Newer cable installations are pressurized which reduces the effects of water seepage.  Older cable installations cannot be protected in such a way unless the old cable is replaced by a completely new installation.

Reasons Telco Loss Has Not Progressed More Rapidly

As I see it, there are several reasons as to why the number of people fleeing from landline based Telco Internet has not been as meteoric as we would have thought.  The primary explanation is demographic.

There are rural areas and even some sparsely populated inner city areas that the cable companies simply will not touch.  This is due to simple economics.  If the cable company cannot earn back their investment in installing the cable infrastructure and the last mile cabling within a few years, they are not interested.  After all, they are working for their shareholders, which ironically are some of the same people that are not served.

Another reason is speed.  Yes, cable is typically faster than DSL Service.  I stress the word typical.

Cable Internet in new developments will get you the fastest cable speed possible and you will be impressed.  However as the area is developed and more families move in, a problem unique to cable installations develops.  Each node of up to 256 homes will develop problems if the data portion of the cable system experiences saturation.

In other words, the more homes using the Internet the more congested it can become.  You may have a good speed connection during the day for your home business, but you will be aggravated as soon as all the children come home from school and the problem will worsen after dinner time when the adults join in with their Internet applications.  Snails will appear fast when this happens.

VDSL has also contributed to the speed factor in the few areas that telcos offer it.  Speeds of 30 Mbps are available with this new technology and that speed can out-perform cable Internet.  Unfortunately, not all telcos support VDSL.  Also, the further you are from the CO, the speeds become slower until a point where the service will not work.

Another Interesting Development.

Cable companies are winning the Internet access war.  They now own 57% share of the Internet access with the Telcos having the other 43%.  Of the new customers entering the Internet marketplace 83% are choosing cable Internet access.  We can see if this continues, the cable companies will eventually approach the 80% to 85% market share.  They will never get 100% as they have chosen not to install infrastructure in the sparsely populated rural areas.

An interesting development is wireless Internet access.  Usually limited to 12 Mbps download speeds, wireless access has gained some popularity in rural areas.  Verizon has pioneered the wireless fixed home Internet market with their HomeFusion Broadband  product, but the 12 Mbps is a hindrance.

A new wireless product is just emerging that offers 50 Mbps download speeds.  OMGFAST has developed this new technology.  Who knows?  They may just start stealing the customers from the cable companies.

Circle Fred on Google+

Follow Broadband Expert on Twitter

Circle Broadband Expert on Google+