IP Democracy: BellSouth Reports Record DSL Growth

As it gears up to get absorbed into the AT&T empire, incumbent telco BellSouth is in relatively good fighting shape. The company issued its Q1 06 earnings results this morning showing decent revenue, operating income and operating margin growth, all aided by record-breaking quarterly growth in DSL lines.

Operating revenues were up slightly year-over-year, a good sign given the continued decline in BellSouth’s access lines. Revenues rose from $5.09 billion in Q1 05 to $5.171 billion in Q1 06. At the same time, operating income climbed by 16%, from $1.635 billion to $1.9 billion, with operating margins jumping up from 19.7% to 21.9%.

Access lines continued to decline overall, slipping from 21.2 million to 19.8 million; however, most of the decline stemmed from the consumer retail market. The lucrative business access line market declined, but the retail business line continued to post quarterly gains.

DSL was the big star, with BellSouth adding 263,000 net new DSL customers during the quarter, a record for the phone company. By quarter’s end, BellSouth served 3.15 million DSL customers, or 16.4% of the homes capable of buying DSL.

The surprising part of BellSouth’s DSL growth surge is that unlike Verizon or AT&T, BellSouth has not engaged in steep DSL price competition, although the telco has lowered the cost of promotional service somewhat. In fact, the average revenue per DSL unit was about $42, on par with what typically more expensive cable modem service costs.

Moreover, 80% of BellSouths net DSL adds reflected customers signing up for the higher-priced 3 Mbps service, a sign that a substantial portion of consumers value speed over price. BellSouth is working hard to up its DSL capacity, with plans calling for 50% of the homes passed in its territory having access to 12 Mbps to 24 Mbps by year-end 07.

In the meantime, it doesn’t look like BellSouth will ramp up its IPTV efforts as, perhaps, many expected. BellSouth is testing a version of video-over-DSL called ADSL2+, but during the company’s earnings call, executives said that the ADSL2+ test community will stay in technical trial mode and not move forward to market trial.

That doesn’t mean BellSouth isn’t in the video business. The company’s DirecTV-delivered video package gained 105,000 net new customers during the quarter, giving the telco a total of 628,000 TV customers by quarter’s end.

BellSouth Key Statistics	1Q05	2Q05	3Q05	4Q05	1Q06
Total access lines (mil.)	21.2	20.8	20.4	20.0	19.8
DSL customers (000)	2,349	2,473	2,678	2,882	3,145
Quarterly adds (000)	253	124	205	204	263
Video (000)	314	394	460	523	628
Operating Revenues	5,091	5,142	5,072	5,200	5,171
Operating Income	$1,635	$1,813	$1,817	$1,792	$1,900
Operating Margin	19.7%	21.3%	21.4%	20.7%	21.9%

Posted by Cynthia Brumfield on April 20, 2006 11:35 AM to IP Democracy