As the market for high-speed Internet connections moves into many American homes, telephone companies are finally starting to take market share from once-dominant cable companies.
The top U.S. cable operators -- Comcast Corp. , Time Warner Inc., Cox Communications Inc. , and Charter Communications Inc. -- all reported slower growth in the last quarter among new consumers signing up for high-speed Internet service.
Meanwhile, the top telephone companies offering high-speed Internet access, SBC Communications Inc. and Verizon Communications, are experiencing growth reminiscent of cable’s heyday in 2002 and early 2003.
Cable still holds 64 percent of the high-speed data market, but that share may shrink in the coming year as the telcos make inroads among more price-sensitive consumers with their slower, cheaper digital subscriber line, or DSL, offerings.
“Cable still has 16 million customers and that’s a great place to be, but the next wave of business becomes more difficult,” said Bruce Leichtman, broadband analyst at Leichtman Research Group.
High-speed Internet is a key market for cable companies and phone companies, who see it as a high-margin business that also helps them hold onto customers of their other services.
It’s not surprising that the cable industry would see a slowdown in the number of new high-speed data customers. In a sense, cable is a victim of its own success in that it quickly dominated an emerging market and has driven penetration rates close to 30 percent in some areas.
But the fourth-quarter numbers show a slowdown taking hold.
Comcast added 154,000 in the fourth quarter, down from 190,000 in the third. Likewise, Time Warner Cable’s high-speed additions fell to 182,000 from 190,000 in the prior quarter. Cox’s fell to 144,000 from 169,000 and Charter’s to 88,000 subscribers from 140,700 in the previous quarter.
Meanwhile, SBC gained 378,000 net new subscribers in the fourth quarter from 365,000 in the third, bringing its total high speed Internet subscribers to 3.5 million.
SBC eliminated an introductory offer for most customers last fall, effectively raising prices to $29.95 from $26.95. In February introduced a 3 megabit per second service, as as fast as most cable modems, and priced it at $44.95.
Like SBC, Verizon managed to increase new subscribers to 203,000 in the fourth quarter from 185,000 in the third.
As growth slows, cable companies are looking at defensive maneuvers to defend their market share.
“It’s slower growth for high-speed data and they’ve got to go back to the drawing board and see what the next step is,” said Cynthia Brumfield, analyst at independent research group Pike & Fischer.
Those include promotional pricing, add-on services, and the addition of different levels of service -- known in the industry as “tiering” -- all of which cut into margins.
Charter CEO Carl Vogel said the company would roll out a lower-priced high-speed data option in the second quarter to offset slowing growth.
Comcast experimented last fall with price cuts in areas where DSL providers are strong as part of its “DSL Switch Campaign.”
Time Warner CEO Dick Parsons told analysts in its fourth-quarter conference call that the company would look at offers that are “off the main price plan to see how they work and how they compete with what else is in the marketplace.”
Cable operators have resisted tiering because it costs roughly the same to provide a slower connection as a fast one.
But in Canada, where high-speed data penetration is higher, tiering is becoming the norm. Top cable operators Rogers Communications Inc. and Shaw Communications Inc. have both implemented tiered service.
Both Canadian operators have higher high-speed data penetration rates than their U.S. counterparts but not by much.
Rogers provides high-speed data to 34 percent of its basic cable subscribers and Shaw to 45 percent. This compares to 25 percent for Comcast, 29 percent for Time Warner, and 31 percent for Cox.