When It comes to DSL, Speed Sells

As the parade of earnings of phone companies continues, interesting trends emerge. And some proof, that Bells don’t need to muck around with the net much to make money.

BellSouth and SBC/AT&T reported weaker than expected DSL additions. BellSouth added 204,000 DSL connections, much lower than Wall Street expectations. BellSouth was able to make more money on their DSL business, despite the fewer than expected DSL additions. After falling for two consecutive quarters, DSL average revenue per user went-up 7.2% in the fourth quarter of 2005. Why did this happen?

In the conference call, BellSouth executives explained that this was due to customer migration to higher speed and yes, more expensive plans. In face nearly 50% of the new DSL sign-up are for the higher priced 3 Mbps and 6 Mbps service tiers. All this means, that “despite slowing customer growth, this drove DSL revenues growth of 28.4% after just 16.4% growth in 3Q and 22.9% in 2Q,” writes UBS telecom guru John Hodulik in his research report.

Look at Verizon, which has been pushing higher speeds, including FIOS and it saw a sharp increased in the number of its broadband subscribers – amazing 613,000. “Overall the increasing use of broadband connections is redefining the use of the traditional wireline business and creating new opportunities,” Doreen Toben, Verizon’s chief financial officer, said on a conference call.

Now compare this with the fourth quarter 2005 performance of SBC. The largest phone company in the US added 425,000 DSL lines, a sharp decline from 528,000 additions in the the 3Q. Mind you this is despite the cheaper (and slower) $14.95 plans, and what not.

I feel, the market is saying that customers will pay for higher speed. Not for tiers. I think if Bells are brave enough to offer 25 mbps for $75 a month, they will find demand and profits. I am not sure if you agree with me, but I clearly see a direct correlation between the demand and speeds.