Despite some ambitious fiber-fed deployments by telcos such as Verizon, the cable industry and its technology arsenal is “poised to ‘win’ in the majority of the country,” says a new report from Sanford C. Bernstein & Co.
Although the telcos are starting to deploy advanced fiber-to-the-home (FTTH) and fiber-to-the-neighborhood (FTTN) networks and will create some competitive pockets, the reach of those technologies will be “sharply limited,” according to a summary of a new report titled, “The Dumb Pipe Paradox.” Cable, meanwhile, is already positioned to offer voice, video and data services via a single network.
The report notes that FTTH networks will reach less than 14 percent of U.S. homes by the end of this decade. Verizon’s FiOS plant will be offered to just 13 percent of the U.S., Bernstein said, citing Verizon’s projections.
FTTN networks, akin to AT&T’s strategy in brownfield areas, will reach 26 percent of the country by 2010, the report forecasted.
That means the balance of the telco footprint – about 60 percent – will continue to be served by DSL technologies. And that, in Bernstein’s estimation, is not exactly a good thing, particularly as Internet-video services continue to proliferate.
There is growing evidence “that DSL simply won’t be good enough for long,” wrote report author and Bernstein analyst Craig Moffett.
He adds that the downstream for the median average DSL user is less than 1 Mbps, while cable modem subs see between 4 Mbps and 5 Mbps. At the same time, cable has started to retake retail market share from DSL. In Q3, residential DSL took in 44.1 percent of net additions, versus 55.9 percent for cable. DSL’s Q3 numbers, according to Bernstein’s analysis, were the lowest in about two years.
“Over the long term, DSL may turn out to be simply an interim step from dial-up to even higher-speed broadband,” Moffett wrote.
The report also delves into fears that cable networks will be transformed into common carrier “dumb pipes” as consumers continue to use the operator’s Internet connections to obtain video directly from YouTube and other sources other than the cable provider.
Despite those features, “in our view, that wouldn’t be an entirely bad thing,” Moffett argues.
And why’s that? Although cable revenues and EBITDA would be lower in a “dumb pipe” scenario, free cash flow would actually rise, because capital for set-tops, headend equipment and VoIP softswitches and interconnection facilities would be curtailed.
