Broadband Question: Are AT&T's Dismal Broadband Adds a Bad Omen?

Here’s something to keep an eye on as cable starts reporting 2Q results in the coming weeks: What do broadband adds look like? AT&T posted a decline in broadband adds, signing up only 46K net adds during the Q. The number’s especially startling when you consider that AT&T added nearly a half million broadband subs in 1Q08. CFO Richard Lindner chalked it up partly to normal seasonality, but he also cited the economy. While he said the telco is not seeing significant increases in non-pay disconnects or churn, it is finding that some customers are disconnecting broadband all together and not going to a competitor. "I think these tend to be more customers that are in the value segment," he said during AT&T’s earnings call. "Customers that have more incidental usage of broadband and Internet in the home, and as a cost-cutting measure are just saying we’ll use wireless access or we’ll use Internet access through our work, and they are just doing it to cut costs." While Collins Stewart‘s Tom Eagan wondered if AT&T’s weak broadband adds suggests an overall slowing of broadband growth, Sanford Bernstein‘s Craig Moffett suggested cable could end up achieving its highest share of broadband net adds this quarter. "As we have long argued, cable is surely and not-so-slowly winning the broadband wars," Moffett said. U-Verse TV adds were healthy at 170K, giving AT&T about 500K total subs for its video service. Lindner said U-Verse now has more than 10% penetration, and execs are comfortable with a target of 1mln subs by year-end. AT&T’s results brought bad news for DISH, with the telco adding only 3K DBS subs through their joint marketing partnership vs 40K in 1Q08. That doesn’t bode well for DISH’s 2Q net adds, with the DBS provider coming off a rocky 1Q. Primary consumer access lines fell 8.7%, but margins were better than Bernstein expected. As for cable competition in the small-medium business market, Lindner’s take: "While they are making some progress, at this point to us, it looks pretty small." He estimated that cable has about 2%-2.5% of voice share for regional businesses and about 20% share in broadband for these businesses.