Phone companies in the U.S. are losing thehigh-speed Internet game. In the second quarter, the landline phone industrylost broadband subscribers for the first time, as cable companies continued topile on new household and small business customers, thanks to the higher speedsthey offer in most areas.
The flow of subscribers from phone companies to cable providers could lead to ade facto monopoly on broadband in many areas of the U.S., say industrywatchers. That could mean a lack of choice and higher prices.
Phone lines, designed to carry conversations, and often decades old, are poorlysuited to carry Internet signals compared to the heavily shielded cables thatcarry TV signals. That means cable companies find it much easier and cheaper toprovide fast Internet service compared to the digital subscriber lines, or DSL,that phone companies provide in most areas.
Cable providers now offer download speeds of 100 megabits per second in manyareas, about 20 times faster than DSL.
The country's largest Internet service provider is cable company Comcast Corp.,with 18.7 million, followed by AT&T, with 16.4 million
Verizon Communications Inc., the country's second-largest phone company, hasreplaced its phone lines with optical fiber in some areas, letting it competeon speed with cable. But expanding service is expensive, so Verizon has stoppedadding new areas to its FiOS build-out.
AT&T Inc., the largest phone company in the U.S., has taken a moreconservative approach to optical fiber, building it out to neighborhoods butnot all the way to homes. The Internet signal is still carried the laststretch, into the home, on a phone line. This build-out is less costly thanVerizon's, but doesn't let AT&T compete with the fastest cable connections.
The AP's tally of reports from the eight largest phone companies in the U.S.shows they collectively lost 70,000 broadband subscribers in the April to Juneperiod. Meanwhile, the top four public cable companies reported a gain of290,000 subscribers.
AT&T accounted for the bulk of the loss — 96,000 subscribers — while othercompanies on average added a few thousand subscribers.
The second quarter is a traditionally weak one for all broadband providers,since college students cancel their subscriptions before heading home for thesummer. The picture for phone companies is less dire when considering the last12 months, a period during which they added nearly 600,000 subscribers.However, cable companies added more than three times as many.
Phone companies were early in hooking up people to the Internet, and grabbed alead in the broadband build-out of the early 2000s. The tide turned in 2008,and cable companies have been adding subscribers at the expense of phonecompanies since then.
Now, phone companies account for 43 percent of U.S. homes connected tobroadband, according to Leichtman Research Group, with cable connecting therest.
Analyst Craig Moffett at Sanford Bernstein called the decline in broadband a"body blow" to phone companies, which have been using broadband tooffset a long-running loss of subscribers to regular phone service. Now, bothare declining, he noted.
Susan Crawford, a professor at Cardozo Law School in New York and a formerassistant to President Obama on telecommunications, has argued that a loomingcable monopoly in three-quarters of the country is "the central crisis ofour communications era." She suggests that the U.S. follow the example ofcountries that have forced cable providers to allow other companies provideInternet service over their cables. The service-providers would compete witheach other and provide some choice to the consumer, she says.
The industry has resisted this type of arrangement in the past, insisting thatfreedom from regulation provides them with an incentive to invest in theirsystems and upgrade speeds.