Is DSL Dead? Cable Operators Keep Stealing Phone Companies' Internet Users

In the game of Internet connectivity, it appears that size does indeed matter: size of the Internet pipe, that is. And in this game, the phone companies keep losing.

A new report from the Leichtman Research Group reveals cable operators acquired 330,000 new subscribers in the second quarter of 2012, while the telephone companies posted a net loss of about 70,500 subscribers.

The source of the bleeding was right smack dab within the phone carrier’s DSL service: the once-mighty broadband Internet channel that has seen a lot of subscribers flee in favor of faster fiber- and cable-based services.

AT&T and Verizon, the top two phone companies providing Internet service, did add 669,000 fiber subscribers via their respective U-verse and FiOS services, but that wasn’t enough to compensate for their combined loss of 763,000 DSL subscribers.

No one should be terribly surprised by such small numbers - the second quarter is seldome stellar for Internet providers. College students, for instance, typically drop their subscriptions when they go home for the summer or graduate.

For telephone companies, though, this was only the second time they had a net quarterly loss against the cable Internet providers like Comcast, Time Warner and Cox. In the second quarter of 2010, they dropped back by a mere 1,600 subscribers.

The Rise of Cable Internet

Cable companies increasingly seem to have the upper hand over their phone competitors. “Over the past year, the top broadband providers have added nearly three million subscribers, with cable providers accounting for 83% of the net additions,” reported Bruce Leichtman, president and principal analyst for Leichtman Research Group.

Explaining this trend comes down to three major factors:

1. Size

2. Price

3. Content

Size refers to broadband speed, which is almost always much faster on cable services than DSL. Even when ADSL can match cable Internet for download speeds, cable technology enables higher upload speeds, something that more Net-savvy customers are looking for if they are using more cloud-based services for storage and application use.

Pricing can work in the cable providers' favor, too. Thanks to bundling of services and regional pricing differences, it’s hard to estimate which option is cheaper in a given region, but anecdotally in northern Indiana, the non-discounted price for a local telephone company’s fiber-based Internet service is $63/month for 24Mbps download service, while a local cable provider charges $58.95/month for a comparable 30Mbps service. (Not counting modem rental and other fees.)

Assuming these providers actually deliver these advertised speeds, this breaks down to $2.63 per Mbps for the phone company and $1.97 per Mbps for the cable company. Worse for the phone company, this is the highest download speed it offers. The cable provider has two more tiers of service, up to a 105Mbps download pipe for $199.95/moth that comes in at $0.53 per Mbps.

Cable companies typically have the leverage on content, too. Having already made their deals with the television and movie studios, it’s easy for the cable providers to make a few more arrangements to provide content like the Olympics online for their TV subscribers. Services like FiOS and U-Verse can make similar deals, too, but any phone company that relies on DSL as their broadband option will be at a disadvantage.

Don’t Forget Wireless Broadband

One area where the phone companies might recoup some losses against the cable providers for Internet subscribers may be rural customers. As faster 4G wireless service covers more square miles, there could be a new crop of rural customers taking advantage of broadband via that channel, especially in areas where physically stringing cable or DSL wires is impractical. If wireless broadband is factored into the phone companies' overall Internet subscription numbers, things might not look as dire.