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Slowdown in broadband growth challenges Qwest, Comcast

By Andy Vuong
The Denver Post

August 5, 2010

 

Struggling for years with land-line losses, traditional phone operators now face a new challenge: slower broadband growth.

Denver-based Qwest on Wednesday reported a net gain of 7,000 high-speed Internet subscribers during the second quarter, down from 40,000 additions in the first quarter and 33,000 a year ago.

As a group, telecommunications companies probably lost broadband subscribers for the first time in a quarter since DSL became available, UBS analyst John Hodulik wrote in a research note.

DSL, high-speed Internet service offered over phone lines, was launched in the late 1990s.

Cable-TV companies are also seeing slowdowns. Comcast added 118,000 high-speed Internet subscribers in the second quarter, down from 399,000 in the first quarter and 393,000 a year ago.

"There's something bigger going on there," said Qwest chief operating officer Teresa Taylor. "What's happening with the consumers, and why are they dropping service or not taking on new service overall?"

Consumers may be canceling broadband service because of the tight economy, Taylor said.

Some may be relying solely on smartphones for Internet service, many of which now have full Web- browsing capabilities and can be tethered to computers to share the Internet connection, though the speeds are slower than home broadband access.

Qwest, which is merging with CenturyLink, has 2.9 million residential and small-business broadband customers.

Comcast has attributed some of the slowdown to intense competition and cancellations after promotional pricing periods end.

Qwest recently launched a promotion offering high-speed Internet access of up to 40 megabits per second for $19.99 for six months with a qualifying home-phone package.

Taylor said the company's subscriber additions should improve in the third quarter because of the promotion.

Qwest's faster Internet service using fiber-to-the-node technology is now available to 4 million households. In the second quarter, 52,000 customers added the faster service. But 45,000 customers disconnected from slower DSL service, which tops off at 1.5 megabits per second.

In recent years, Qwest has depended largely on broadband growth and cost cuts to post profits amid ongoing land-line declines.

The company said Wednesday that its second-quarter profit dropped 26 percent to $158 million, or 9 cents per share, on par with estimates from analysts polled by Thomson Reuters.

Revenue fell to $2.9 billion in the second quarter, from $3.1 billion during the same quarter in 2009. Total access lines dropped 11 percent to 9.4 million, from 10.5 million.

Qwest employs 29,200 after shedding 2,300 jobs over the past year. More cuts are expected after the CenturyLink buyout. Qwest chief executive Ed Mueller said the merger is expected to close in the first quarter of 2011.

Separately, CenturyLink reported that its net income rose 219 percent to $265.7 million in the second quarter, up from $83.3 million a year ago, driven by the company's acquisition of phone operator Embarq. That deal closed in July 2009.

Andy Vuong: 303-954-1209, avuong@denverpost.com or twitter.com/andyvuong