QWEST FALLS FURTHER BEHIND IN RBOC RACE TO DEPLOY DSL

While the rest of the RBOCs have been gearing up their DSL efforts in preparation for the ultimate confrontation with cable, Qwest Communications has seen a steady decline in subscriber growth, culminating in the third quarter with a dismal 3.3% increase in net additions.

Qwest added only 17,000 new subscribers last quarter, compared with the 121,000 to 226,000 subscribers the other RBOCs added in the same period. And while Qwest recorded 18.6% quarter-over-quarter growth in the first half of last year, the carrier's numbers have dropped rapidly since December, when former CEO Joe Nacchio projected 200,000 to 250,000 new subscriber additions for 2002.

At its current rate, Qwest will fall far short of that goal with just 77,000 new additions this year, but Qwest has already tossed out last year's guidance and chalked up the low numbers to belt-tightening.

Facing financial troubles from both a down economy and federal investigations, Qwest has halted all DSL expansion efforts, concentrating instead on lifting its penetration in current markets.

Qwest already has achieved the industry's highest penetration level in its current markets, said Steve Starliper, Qwest's vice president of consumer product management. Qwest is serving an average of 1200 to 1400 DSL lines per central office, compared with the 400 to 700 lines per CO that the other RBOCs are serving, he said. While those markets are far from saturated, Starliper said, Qwest has tapped out most of the early-adopter market that drove initial growth.

“We had early-on growth, but we've also changed our strategic focus,” Starliper said. “We're still very committed to DSL, but we're focusing on the returns off our existing investment instead of expanding our footprint to new markets.”

While Qwest has been successful in filling out its current markets, it lags far behind its peers in footprint size. Qwest has coverage in only 40% of its region compared with an average of 57% coverage among other RBOCs, said Cynthia Brumfield, president of Broadband Intelligence.

“They've deployed to some fairly limited areas, and they have been successful in filling out those areas,” Brumfield said. “But they need to ramp up deployments if they expect to grow.”

But footprint isn't the only factor, Brumfield said. Qwest has cut back drastically on marketing and promotions, even though the rest of the industry has ramped up its efforts. BellSouth, which led the RBOCs in growth, saw a 15% subscriber jump in the third quarter — in part because of an aggressive marketing campaign geared at mass-market consumers. BellSouth said it's making up for lost time as the last RBOC in DSL. The carrier has already filled out its footprint — BellSouth claims 72% coverage — and is targeting new subscribers that would usually be destined for cable modems.

“We haven't taken our foot off the gas,” said Randy Kinkaid, regional director of sales and marketing at BellSouth. “We've even been more aggressive than cable in getting new subs. In markets like Miami and Atlanta we are actually beating cable in overall subscribers.”

SBC is enjoying similar success with its new SBC-Yahoo initiative. It increased its subscriber base by 256,000 to 1.95 million, bringing it to the number two spot for total broadband subscribers, right behind Time Warner.

While Qwest has cut back on marketing, the carrier will soon launch a holiday campaign targeting the mass market and featuring MSN 8.0, Starliper said.