SBC, Verizon Lead Way In Quarterly DSL Gains


SBC Communications Inc. reported strong growth in its digital subscriber line business over the fourth quarter, while Verizon Communications Inc. produced solid numbers and BellSouth Corp. disappointed.

SBC added 245,000 DSL subscribers for its second-best quarter ever, showing both sequential and year-over-year growth.

Verizon added 148,000 subscribers, slightly below its 2002 quarterly average of 152,000, but far below the 225,000 it added in fourth-quarter 2001.

And BellSouth dropped further, adding only 97,000 subscribers during the quarter, compared to 157,000 a year ago and 121,000 in third-quarter 2002.

SBC now serves 2.2 million DSL subscribers, while Verizon serves 1.8 million households and BellSouth just over 1 million. Qwest Communications International Inc. has about 500,000 DSL customers.

For SBC, it was the fourth straight sequential quarterly increase, chairman and CEO Ed Whitacre said. The company added 867,000 DSL subscribers in 2002, compared to 566,000 in 2001.

"DSL results continue to be strong," Whitacre said, noting that penetration rates have hit 10 percent in some California markets. "We see that as a good business for us going forward."

The company expects its DSL business to be positive in terms of earnings before interest, taxes, depreciation and amortization (EBIDTA) by early 2004, said CFO Randal Stephenson. Driving that progress: 55 percent reductions in both acquisition costs and recurring expenses, he said.

More than 95 percent of DSL subscribers install their equipment themselves, said Stephenson.

Two-thirds of the telco's homes are now DSL-capable, the company said.

Overall, SBC managed to post earnings of $2.4 billion in the quarter, compared to $1.2 billion in the year-earlier period, even though revenue dropped from $11.9 billion to $11.2 billion.

"It was more of the same from the economy," Whitacre said. "And there was even some further slowdown in business demand."

SBC lost 1.2 million access lines in the quarter, largely to long-distance providers that also offer local service.

In the fourth quarter, SBC launched a "Total Connections" bundle in California — a package of local and long-distance wireline service, wireless telephony, DSL and calling features for $87.

"We will be moving forward on a company-wide bundling plan," Whitacre said. "We will spend money on advertising on the bundle."

Verizon Thrives

Verizon added 603,000 DSL subscribers in 2002, compared to 660,000 in 2001.

"We feel we had a really good year," he said. "Our goal was to change the momentum of the market share" in markets in which Verizon competes with data-over-cable providers, he added.

Verizon was close to a 50-50 split in those markets, according to Seidenberg.

For competitive reasons, Seidenberg said Verizon would not make public its DSL growth forecasts for 2003. But the telco does plan to expand its deployment of remote terminals to reach more potential subscribers, he said.

The company said 62 percent of its lines are DSL-qualified and 57 percent of homes are covered by DSL. Self-installation rates reached 99 percent during the quarter.

Growth in the wireless, long-distance and DSL sectors helped offset revenue declines in Verizon's business segment, the company said.

Like other telco chieftains, Seidenberg didn't hold much hope for an economic turnaround. Verizon officials also listed cable's broadband initiatives in its "threat" column for 2003. Overall, Verizon reported earnings of $2.3 billion on revenue of $17.2 billion.

Dropping down south

BellSouth's addition of 97,000 DSL subscribers in the fourth quarter was a sharp drop from fourth-quarter 2001 (157,000) and third-quarter 2002 (121,000).

Over calendar year 2002, BellSouth added 401,000 DSL subscribers, a drop from 450,000 in 2001. The telco said DSL was available to 73 percent of its households, with a penetration rate of 6.8 percent in available service areas.

"It's important to grow, but it's more important to grow profitably," said chief financial officer Ron Dykes. Dykes said DSL contributed $500 million in revenue to BellSouth in 2002, adding that the business was EBITDA-positive.

But some analysts were less than impressed.

BellSouth had planned to add 500,000 DSL subscribers this year and fell 100,000 short of that goal, noted DSL Reports analyst Dave Burstein.

"Although they expected a fourth-quarter holiday upturn, BellSouth actually did less than in the first quarter [108,000 additions]," he said.

The company said it has seen growth from its bundling strategy, with 1.2 million customers taking a combination of local, long distance, high-speed Internet and cellular service.