Voice, video, data: Which one should you give away?

As growth in the broadband market continues to slow, due to depressed housing starts, a weak economy and a nearly saturated market, competition is intensifying between cable and telco providers, which are increasingly using promotions and giveaways of one service to win the larger residential bundle.

The latest example is Verizon Communications’ offer this week of six months of free DSL to customers who sign up for a one-year contract. That move followed a broadside attack from cable competitors, whose net broadband subscriber additions outnumbered those of their telco competitors by three to one in the third quarter, according to BroadbandReports.com. DSL net adds in particular (not counting fiber) were outnumbered seven to one.

Comcast alone added more than twice as many broadband customers in the quarter than all three former Bell companies combined, surpassing AT&T to become the largest broadband provider in the US, according to BroadbandTrends.com.

“Broadband…should increasingly be seen as cable's core product,” Bernstein Research analyst Craig Moffett wrote in a note on Comcast this month, noting a slackening on the video side: The average revenue per user growth for Comcast’s video services has been falling for the last three quarters.

AT&T, meanwhile, has said recently that video is the most important product to offer to the home, since 90% of its video subscribers also order broadband and 60% take voice. But as bandwidth demand escalates, the broadband market is growing faster than that for voice or video. Stifel Nicolaus estimates the total US broadband market was nearly 7% larger in the third quarter than it was a year earlier.

Focusing on broadband has served the entire cable bundle well. According to Stifel Nicolaus, cable providers added a lot more voice subscribers than telcos added video subscribers in the third quarter, reversing a trend that’s been progressing for the last three years or so as the gap between cable voice and telco video growth approached zero.

Cablevision, meanwhile, proved that it could fend of Verizon’s FiOS offering in New York by including free WiFi in its bundle.

“Cablevision's free Wi-Fi service has emerged as one of the key retention tools for Cablevision's broadband service,” Moffett wrote in a note on Cablevision’s strong third-quarter earnings, finding no sign that the company was resorting to discounts to protect its video base.

Verizon, in turn, touted free WiFi in its latest batch of promotions this week – the same week that Google pledged to give away free WiFi in 47 airports over the holidays, just to promote its Chrome browser.

Verizon learned the hard way this year that using subsidized netbooks as a broadband promotion can be a risky proposition. As the Yankee Group reported in October, the high return rate for netbooks suggests a lot of consumers were disappointed in netbook functionality, an experience that could reflect poorly on the network operator involved, fairly or not.

Given DSL’s vulnerability to cable broadband speeds, the most natural choice for a giveaway might be incremental bandwidth. Stifel Nicolaus analysts estimate total DSL subscribers dropped by slightly more than 100,000 in the third quarter, resulting from typical seasonal factors but also from demand for higher speeds, which led consumers to cable and fiber offerings. Verizon and AT&T have tried to defend against that kind of erosion by offering, as they did this summer, free upgrades to higher broadband speeds just as Comcast was cutting its prices for 50-Mb/s service to below $100 in some markets for customers subscribing to more than one service.

In rural markets, Consolidated Communications claims it used standalone DSL to beat back cable competitors, while bonding DSL lines to boost speeds. In the third quarter, Consolidated reported its lowest access line loss since cable operators launched competitive campaigns in its territory two years ago. It attributed the turnaround in part to its aggressive efforts to call customers of its standalone DSL service and upsell them on voice-over-IP. Consolidated ended up growing its VoIP base by nearly 9% in the quarter, to 8600 subscribers. But Consolidated’s CEO, Bob Currey, also acknowledged, “IPTV really pulls through broadband [orders].”

Another rural carrier, Windstream, reported the lowest line loss in its history in the third quarter, attributing those results in part to a “Price for Life” promotion that gave customers an eternally fixed price for voice and broadband service.

Consumer electronics promotions are sure to ramp up as the holiday season approaches. Triple-play providers will have to decide what to give away to customers so that they don’t give away market share.