Second quarter results for broadband growth were a tad underwhelming. There are any number of factors which probably contributed to this slowdown, with the economic slowdown and housing crisis certainly towards the top of the list. But growth is also slowing because broadband penetration has grown considerably over the past few years, now ranging somewhere between 50% to 60% (depending on who you ask), and is beginning to slow down. There certainly is more room for growth, but at some point in the near future, broadband penetration will slow even more as it approaches saturation. It’s anyone’s guess what saturation is, but I would bet somewhere around 75% penetration of households (as a national average – individual markets will vary widely). From a service provider’s point of view, that suggests that posting continuing net adds of broadband customers will increasingly involve convincing a competitor’s broadband customer base to switch service.
Recent evidence suggests that cable companies seem to be winning this battle. Consider that estimates range from 70% to 90% of net new broadband adds in 2Q08 were captured by cable companies, while telcos saw dramatic decreases in DSL growth. A somewhat revealing nugget of information came from Comcast, when their CTO revealed that new broadband subscribers in 2Q08 selected their premium broadband tier four to one over their economy broadband tier. That suggests that new broadband customers to Comcast are attracted to their “premium” broadband service the most. If that data point is more than an anomaly and representative of a trend, cable companies may be positioned to extend their 2Q08 gains. Through the introduction of DOCSIS 3.0, cable broadband products will be significantly enhanced. The improvements will come in dramatic increases in downstream and upstream speeds, better symmetrical service offerings for the SMB market, and broader abilities to support multiple IP devices, including mobile and portable devices. Companies like Comcast, Cox, Time Warner Cable, and Charter have already announced their migration plans to DOCSIS 3.0. Smaller cable companies like Mediacom are also eyeing the technology as a competitive differentiator.
For cable competitors, especially DSL operators, the time to begin planning for DOCSIS 3.0 competition is now. Waiting until it shows up in the marketplace wouldn’t be wise. We certainly can’t predict that DOCSIS 3.0 will be a game changer in every market. Other factors will come into play. But in the quarters and years to come, taking broadband customers from competitors will be a major driver of broadband subscription growth. It would be wise to develop a strategy now that addresses how you will combat the DOCSIS 3.0 onslaught. Otherwise, you may find yourself in a losing battle to hold on to your existing broadband subscribers and gain new ones.
