How is that for a provocative statement? Despite all the posturing and noise about fiber to the home, it is becoming increasingly evident that DSL and copper will dominate the near term future of the Baby Bells. If you stepped back, and looked at the second quarter results, it becomes clear that Bells were saved by the fast growth of DSL, at a time when access line and local voice revenues are falling faster the spread between New York Yankees and BoSox. Telephony magazine notes that while, “DSL still only accounts for a small percentage of RBOC revenues, but with access lines disappearing, DSL is viewed as the keystone of future revenues via bundling. Customers with DSL are 50% less likely to churn than customers without DSL, said Brahm Eiley, an analyst with Convergence Consulting Group.”
In addition, hesitantly the Bells have started to sell Naked DSL, which means they can ensure that the naked DSL buyers still keep paying them around $50 a month, roughly what a typical user spends on his local phone bill. Add another $10 bucks for unlimited VoIP voice, the numbers start making sense for the Baby Bells. They need to hang on to their customers who can otherwise defect to cable companies.
A few weeks back, I was chatting with Susan Kalla, the ace telecom analyst over at Friedman Billings and Ramsey. She pointed out the biggest problem in deployment of FTTP is not the cost of hardware, but the cost of actually installing the damn things in place. As a result, she expects the FTTH deployment to be slower than the normally snail-like pace of Baby Bells. Instead, most analysts are expecting that Bells will ratchet up their DSL speeds modestly, and when ADSL 2 rolls around, they can really go for a speed bump. ADSL2 can bump the speed to about 15 megabits/second, which is enough for some sort of triple play package. Come VDSL, and Bells can roll out a real triple-play bundle.
What are your thoughts?