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Competition Pays Off

4/13/2007 8:00 PM Eastern

Makers of cable-modem and digital subscriber line equipment are expected to continue to reap the benefits in the battle for broadband subscribers over the next five years.

According to a report from iSuppli Corp. principal analyst Steve Rago last week, DSL offerings — often lower-priced and at lower speeds than cable-modem packages — are expected to more than double their subscriber base in North America between 2005 and 2011 — to 51.79 million in 2011 from 23.08 million in 2005.

Cable-modem subscribers are projected to grow at a slower pace, to 47.52 million in 2011 from 26.51 million in 2005, Rago wrote.

The growth in cable-modem and DSL subscribers bodes well for broadband-equipment providers, according to iSuppli. The El Segundo, Calif.-based research house estimates total worldwide broadband-equipment revenue will grow at a 6% annual clip between 2005 and 2011, rising to $15.1 billion from $9.4 billion.

Worldwide cable customer-premises equipment revenue will actually decline to $920 million from $1.4 billion (an 11% compound annual dip), while DSL equipment revenue will rise to $5.8 billion from $2.5 billion (an 11% compound annual increase).

Leading the charge for cable operators in the U.S. will be the two dominant service providers, Comcast and Time Warner Cable.

Comcast is expected to more than double its cable-modem subscribership to 19.34 million in 2011 from 9.34 million in 2005.

Time Warner Cable is seen as growing its base to 8.03 million in 2011 from 4.88 million in 2005.

DSL service providers will be led by Verizon Communications and AT&T. According to iSuppli, Verizon will nearly triple its DSL subscriber base, to 13.28 million in 2011 from 5.42 million in 2005 — a 13% compound annual growth rate.

AT&T will grow to 12.33 million DSL subscribers in 2011 from 6.95 million in 2005. BellSouth, acquired by AT&T earlier this year, will nearly triple its DSL base to 7.41 million from 2.89 million in the same period.

In an interview, Rago said that the main reason for DSL’s expected robust broadband subscriber growth is pricing.

“The bottom line is that it’s a price war,” Rago said. “I think the telephone companies are much more aggressive in this area.”

Also playing a role in the growth in broadband equipment sales is increasing churn. While Rago had no hard numbers for North American broadband disconnections — he said some estimates put it at a combined rate of between 5% and 20% annually for cable operators and telcos — it nonetheless adds up to higher equipment sales.

September