Market Watch

Broadband Internet Penetration Deepens in US; Cable is King


Close to four-fifths of the United States is now connected in some form to the broadband Internet universe, with cable remaining the dominant mode of access across the continent-wide landmass, according to a new Broadband Media Intelligence report from IHS Inc.

Approximately 86.1 million U.S. households at the end of the first half of 2013 had broadband Internet access, translating into a 70.2 percent penetration of all American households. Penetration will reach a projected 71.3 percent at the close of 2013, up from 69.6 percent last year.

Broadband Internet will continue to blanket ever-larger portions of the country’s landscape, with coverage estimated to hit 74.1 percent of households by 2017, equivalent to some 94.7 million homes in the United States.

In the last five years the U.S. broadband market experienced especially dramatic growth, adding 19 million households. A recovering economy and resurgent housing market, along with an increased need for speed and connectivity, were the main reasons in the growing demand for broadband among American consumers.

DSL and fiber battle cable for Internet turf

Cable rules as the main form of broadband Internet access for U.S. households with a market share this year exceeding 50 percent. Cable connections have been growing at an average of 600,000 connections every quarter for the last two years—an increasingly unassailable position in the market, as cable is also much easier and cheaper for operators wishing to upgrade networks or offer superfast downstream connection speeds of 100 megabits per second or higher.

In comparison, DSL—the second-ranked access technology of note next to cable—is on the decline. At the end of June 2013, the 31 million DSL connections, or 34 percent of the fixed broadband market, had posted a steep decrease of 258,000 lines. DSL has been shrinking by 0.3 percent each quarter for the last year-and-a-half, with Verizon continuing to migrate away from DSL and upgrading consumers to its fiber network. The shrinking of the DSL market continues despite the gains made by AT&T’s U-verse, which is included in the DSL category given its classification as a very-high-bit-rate product. Overall, U-verse inroads have been unable to offset DSL losses.

For its part, Verizon is the main driver of fiber-to-the-premises (FTTH) access to broadband Internet, via its FiOS service. FTTH is growing even faster than cable, at 3.1 percent average quarterly growth. With nearly 7 million connections at the end of the second quarter, FTTH had about 8 percent of the fixed broadband Internet market.

The market’s main players, titans all

Comcast had the largest portion of the U.S. broadband Internet pie at the end of the second quarter, with more than one-fifth market share. Comcast was followed by AT&T and Time Warner Cable, with Verizon and CenturyLink rounding out the Top 5.

Together the five giants commanded nearly 70 percent of the space, claiming more than 60 million U.S. customers among them.

The US: it’s a big country

Many critics bemoan a supposed lack of competition in the U.S. broadband space, but the reality of the market is much more complex. For instance, while an overwhelming proportion of the population had broadband Internet access through cable, DSL or fiber, actual uptake by consumers through subscriptions was much less—40 percent at the end of 2012 for cable, and 23 percent via DSL.

This means that less than half of U.S. households with access to cable actually subscribed to it, or that only a quarter of the country’s homes able to connect to DSL broadband chose to do so.

The cities where broadband Internet service is most vigorous also offer a mixed picture. Of the 20 most populous U.S. cities, almost half are essentially duopolies with only two broadband service providers in place—one for cable and another for DSL. In another four cities, additional service providers are available but cover only less than 10 percent of the metropolitan area, offering no real competition to the other companies. Moreover, cable companies, as well as telcos like AT&T and Verizon, rarely operate in the same cities. Even if present in the same metro area, the competing entities tend to focus operations on different parts of the city.

For this and other reasons, the U.S. broadband market—with its massive urban areas juxtaposed against near-uninhabited areas such as Alaska and the Great Plains—cannot be compared to the more compact, densely populated markets of Western Europe, or the largely urbanized but small broadband territories of South Korea or Hong Kong.

Such factors need to be taken into account when sizing up the American broadband space, where considerable improvements have taken place alongside persisting problems that continue to hamper industry performance.

Challenges lie ahead, especially for entrants

Many hurdles exist for those wishing to break into the U.S. broadband market—whether to offer different services or to increase local competition.

Various steps can be taken to improve local broadband markets, IHS believes. Among them are the relaxation of laws on cities and government bodies when rolling out community networks; the reduction and consolidation of rights-of-way pricing, as well as access to utility poles or ducts and conduits; expediting processes for broadband infrastructure access; and introducing statutory rights for third parties to wholesale fiber or cable products to consumers.

In the case of the last, the move might be controversial, similar to what would happen in a more European-style broadband market where providers lease access to the network from incumbent companies at fixed rates. However, the change would ease the process for smaller providers to enter local markets and help ratchet up competition, benefiting consumers on the whole. 

Read more >> US broadband market: future lies in improving competition