Baby Bells Ring Up Strong DSL Growth


The first quarter turned out better than expected for cable's main digital subscriber line foes, as SBC Communications Inc. posted its largest quarterly new-subscriber numbers ever, and two other Baby Bells made modest recoveries.

SBC's DSL high-speed Internet business boomed in the first quarter, racking up 270,000 new customers — the highest quarterly growth ever reported by a DSL provider. SBC also claims the most DSL customers of any provider, with 2.5 million subscribers.

"Our service continues to get better and better, the customer experience is better. People really like our SBC-Yahoo! Product," SBC chairman and CEO Ed Whitacre said. "We already have the largest DSL footprint of anybody in the industry. We've expanded our sales channel, and we are just marketing better than we used to."

The DSL bottom line has also improved for SBC, and the company remains on target to reach positive earnings before interest, taxes, depreciation and amortization (EBITDA) status by the first quarter of 2004, according to chief financial officer Randall Stevenson.

"Quite frankly, the more we scale the product, the better we like it, and it really starts to take on the nature of a mass-market telecom product," Stevenson said. "So DSL is starting to look pretty good — it's all a function of churn and that upfront provisioning cost, and those numbers are coming down dramatically."

Meanwhile, Verizon Inc.'s residential broadband business rallied in the quarter, adding 160,000 new DSL customers compared to 148,000 netted in the fourth quarter.

Overall numbers will be affected by a significant accounting change, though.

Up to now, Verizon has reported its DSL numbers based on lines provisioned, rather than lines billed. It will now switch to a lines-billed basis, and that carves down the total subscriber headcount by as much as 130,000.

With the accounting change, the Baby Bell's total subscriber count changed just 30,000, from 1.8 million in the fourth quarter to 1.83 million now.

Verizon could see more rapid DSL growth, as it plans to boost the percentage of its access lines qualified for high-speed service from 63 percent now to 80 percent by the end of the year. It also plans to debut a new DSL content and services portal powered by Microsoft Corp.'s MSN.

BellSouth Corp. also staged a DSL comeback in the first quarter, tacking on another 101,000 new customers, for a total of 1.12 million. That's an improvement when compared to the 97,000 new customers it added in the fourth quarter, but is still well off the 121,000 it racked up in third-quarter 2002.

The combination of DSL and BellSouth's new long-distance offerings added $125 million to the Baby Bell's first quarter income compared to the same period last year.

More good news for BellSouth came as the one-time customer acquisition expenses dropped more than 10 percent in the quarter, compared to the average for 2002. Per-customer recurring expenses also fell, according to BellSouth chief financial officer Ron Dykes.

And though BellSouth has not set a capital-expenditures budget, Dykes hinted there could be more money funneled to improvements to support DSL services. "We could spend more money this year, and very well are likely to spend more in DSL," he said.