Tier 1, 2 Telcos Make Big Fiber Bets as DSL Base Dwindles

During the first quarter of 2021, the top wireline providers added about 85,000 total broadband subscribers compared to a net loss of about 60,000 subscribers in the first quarter of 2020.

Bruce Leichtman, president of LRG Research, said in a recent report that the first quarter telcos results saw a notable uptick in fiber-to-the-home (FTTH) customers during the quarter.

“Net broadband losses among Telco non-fiber subscribers were more than offset by over 400,000 net adds via fiber in 1Q 2021, bringing the number of Telco broadband subscribers via fiber to about 14.6 million,” he said in a report.

In this report, we cover two major types of providers:

Tier-1 Telcos: Traditional telcos are at a crossroads. As more customers want higher speeds, this group is moving to deploy fiber to the home (FTTH) across select markets as their traditional DSL and POTS voice base dwindles.

Tier-2 Telcos: Tier-2 telcos include a diverse mix of players in rural and secondary markets. Like the Tier-1 telcos, several Tier-2 telcos have also been expanding their FTTH footprints.

Look at the chart below to get a glimpse into how this segment of providers performed during the fourth quarter. These rankings were calculated from information in service providers’ earnings reports. 

Tier-1s Battle DSL Losses with Fiber

Similar to earlier quarters, the large Tier 1 telcos continued to shed DSL subscribers as customers migrate to either available fiber networks or to cable competitors, which can offer up to 1 Gbps via their existing hybrid-fiber coax (HFC) networks.

AT&T and Lumen lost more legacy DSL subscribers during the quarter. Specifically, AT&T lost 28,000 DSL and 16,000 IP non-fiber and DSL subscribers and Lumen lost 39,000 low-speed subscribers.

However, amidst the lower-speed losses, AT&T and Lumen did report gains in FTTH again in the first quarter. AT&T added 51,000 fiber subscribers and Quantum Fiber added about 40,000 subscribers who purchased speeds of 100 Mbps and higher. Meanwhile, Verizon added 64,000 new Fios internet subscribers during the first quarter.

As large telcos continue to see their low-speed DSL subscribers erode, they have set expansive plans to bring fiber to more consumer and business locations.

AT&T, for one, has committed to build fiber to an additional 3 million-plus locations across more than 90 metro areas. In areas where AT&T has deployed its fiber network, the company noted it has 10 percent higher market share than its competitors and about 70 percent of its gross adds are new to AT&T. In 2021, the company expects broadband revenue growth in the mid-single digits and expanding margins in its broadband business unit.

However, according to a recent ARS Technica article, the 3 million new locations will primarily consist of homes and businesses close to AT&T's existing fiber installations instead of homes and businesses in entirely unserved areas.

After announcing it was spinning offer its WarnerMedia unit and combine it with Discovery in a $43 billion deal, AT&T’s CEO John Stankey said it will have more “flexibility to invest in 5G and fiber to support the growing long-term demand for reliable high-speed connectivity.”

Lumen, whose FTTH division will now be known as Quantum Fiber, has 715,000 FTTH customers and has enabled 2.5 million sites with fiber.

Neel Dev, EVP and CFO of Lumen, told investors during its first quarter earnings call that the amount of broadband customers are using FTTH service. “About 15 percent of our mass markets broadband customers are now on fiber,” he said. “As we have mentioned before, we expect that future performance will be largely driven by our continued success-based investments in our Fiber to the Home in small business and execution around driving up penetration of our competitive assets.”

Tier-2 Further Fiber, Cable Bets

Serving secondary smaller and rural markets, Tier-2 telcos continue to make progress with their fiber and cable builds. 

Frontier and Windstream--two telcos that are in the process of emerging from Chapter 11 protection--have made FTTH a growth priority. 

Frontier’s bets are paying off so far. The telco added 11,000 new fiber customers in the quarter, up from 9,000 fiber net adds in the fourth quarter. The telco said that this was the seventh consecutive quarter of positive consumer fiber net adds and it attributed its strong growth to the fact that it introduced 1 Gbps services in 2019. Fiber broadband ARPU increased $4 year-over-year from a higher speed mix, as well as price increases on new and existing accounts. The company also said it lost 17,000 consumer DSL customers in the first quarter, down from a loss of 49,000 in the fourth quarter.

Windstream Kinetic also saw progress during the first quarter. It added 13,000 net broadband subscribers and grew consumer revenues for the fifth consecutive quarter while expanding gigabit internet service to more than 129,000 locations. The telco accelerated $2 billion capital network investment program to expand gigabit internet service to more than two million locations over the next five years. Kinetic also extended its gigabit services and now reaches 589,000 locations across its footprint. Given the challenges of rolling out broadband, Windstream is developing what it calls “creative partnerships” to bring fiber internet service to the most rural customers.

Consolidated, TDS, Cincinnati Bell and Shentel are progressing with FTTH and cable broadband. Consolidated’s first-quarter broadband additions came in low with only 2,000 new subscribers. However, the telco has launched plans to bring fiber to 1.4 million incremental homes, 1 million of which are in the northern New England footprint. During the quarter, it announced plans to extend fiber-based services to 25,000 residents and businesses in the New Hampshire towns of Durham, Kingston, North Hampton, Pelham, Raymond, Rye, Salem and Seabrook. It is also expanding FTTH service to 23,000 more residents and businesses in the Sacramento, Calif. area.

Cincinnati Bell, which was purchased by Brookfield to become a private company, saw FTTH gains in both Cincinnati and Hawaii. During the quarter, it only added 2,000 new subscribers.

TDS Telecom connected more than 13,000 addresses to its network, bringing total fiber addresses to in existing and what it calls “growing expansion markets.” TDS Telecom is being no less aggressive to enhance its cable network, which now has about 200,000 service addresses. By upgrading the HFC network to DOCSIS 3.1, TDS Telecom now provides 1 Gbps speeds in several markets. On a combined basis TDS can offer 1 Gbps speed to 55 percent of its total fiber and cable service addresses.

Broadband was clearly a key driver for Shentel during the first quarter, adding a combined 4,245 cable, fiber and wireless high-speed data customers. Cable was the clear leader in the provider’s broadband results with over 2,500 new subscribers.

The rural provider is also making progress with its Glo Fiber FTTH and broadband wireless initiatives. During the fourth quarter, Shentel added 1,366 Glo Fiber and 370 for Beam Wireless customers.

To keep up with the first quarter broadband earnings, make sure to check out our total broadband report: From AT&T to Shentel: Tracking the Top 17 Broadband Service Providers in Q1 2021.