Wireline spending up in broadband ‘land grab’

North American spending on wireline equipment surged in the first quarter, even as wireline service revenue declined, according to Ovum-RHK.

This continent’s carriers spent $6.6 billion on their wireline networks in the first quarter, 22% more than they spent in last year’s first quarter. At the same time, revenue earned through those wireline networks sank 6% from a year earlier to $43.6 billion.

In contrast, spending on mobile networks rose in proportion to mobile revenue growth. North American mobile operators took in $31.9 billion in revenue in the first quarter, 15% more than a year ago. And they spent 15% more on those networks-- $4.7 billion.

"Broadband access network spending has been slowly gaining momentum, like a freight train, and now it is screaming down the track," John Lively, Ovum-RHK’s vice president of forecasting, said in a prepared statement.

In a research note issued today, Morgan Keegan analyst Simon Leopold said a “broadband land grab” waged by telcos and their cable competitors led to an unexpected burst of new broadband subscribers in the first quarter. U.S. telcos added 1.71 million (net) DSL subscribers in the first quarter (a nearly 12% sequential jump), while cable operators added 1.41 million high-speed Internet customers (a 33% sequential jump).

Telcos maintained the 44% of the broadband market they held at the end of last year, he wrote.

“Telcos bid DSL at low prices and bundled services aggressively to win customers [in the first quarter],” Leopold wrote, though pointing out that, in aggregate, they lost more than 6% of the access lines they had a year ago. “[Cable voice-over-IP] gains were strong. Time Warner and Comcast added a combined 481,000 VoIP customers, and each could exceed 1 million additions in 2006.”

Leopold also suggested that the telco strategy of investing in wireline networks to stem revenue decline may be effective. Verizon Communications, which is spending more than its peers to upgrade its broadband networks, was the only Bell company to slow its access line loss in the first quarter, he wrote.