Broadband - Global growth is strong, with China leading the way

[iSuppli] Recovering from a slight decline in the second quarter, global broadband subscriber growth is rebounding in the third and fourth quarters as China's demand for high-speed Internet access soars, according to the market research firm iSuppli.

Across the major segments of DSL, cable and fiber, the number of new broadband subscribers worldwide in the third quarter is projected to rise by 5.8% to reach 16.5 million, overcoming the seasonal downward pull of the previous period when subscribers tumbled by 6.6% to 15.6 million.

All told, the projected third-quarter totals will show that the market nearly caught up to the first-quarter figure of 16.7 million. Furthermore, the bounce-back appears to be a prelude to even loftier levels predicted for the final quarter of 2010 as global broadband subscribers rise by 7.3% to reach 17.7 million.

"Broadband subscriber additions declined in the second quarter because of normal seasonality as well as a poor performance in the North American market," said Lee Ratliff, senior analyst for broadband and digital home at iSuppli. "However, Chinese consumers' insatiable demand for high-speed Internet is so high that it will cause subscriber numbers to rise again in the second half of the year."

China continues to add broadband subscribers at a blistering pace. Coming off a best-ever first quarter that saw the addition of approximately six million subscribers, growth in the second quarter slowed only slightly with the addition of another 5.4 million. No broadband slowdown is expected in the world's most populous country, and each of the final two quarters will see new subscribers numbering 5.7 million.

Although subscriber numbers to broadband are growing, the technology that underlies high-speed Internet access is changing rapidly. As services bundling voice and data drive bandwidth demands higher, the market is transitioning from a broadband data paradigm to a so-called "wideband" multiservice and multimedia model. Data rates of 1 to 5 megabits per second (Mbit/sec) may have been adequate when web surfing was the broadband killer app, but 30 to 50Mbit/sec soon will be the norm as consumers migrate to data-intensive applications such as online gaming, streaming video and Internet TV.

Because of this, a race to dominate the wideband market has flared up between the telcos and the multiservice cable operators. Nowhere is the battle more evident than in the United States, where telcos like AT&T and Verizon, and cable operators such as Time Warner, compete on a relatively even playing field, with both camps having near universal access to every American household.

Telcos took the lead in 2008 and extended their advantage into 2009, luring customers away with successful fiber deployments - U-verse in the case of AT&T and FiOS for Verizon.

The tables turned, however, in mid-2009 when AT&T and Verizon ratcheted down fiber deployment and marketing, while cable operators went on the offensive. As a result, cable operators took the lead starting the last half of 2009 and held court until at least the first half of 2010.

Cable's real advantage is its capability to deploy wideband rates economically. Many modern up-to-date cable networks can enable 20 to 50Mbit/sec per subscriber with as little as US$20 for each home passed. In comparison, an investment of US$600 to US$1,500 is required for each household passed with fiber.

Unless the business case for fiber is improved, cable's significant economic advantage could prove a major competitive factor in the medium term, with cable operators continuing to accelerate wideband deployment on their part.

Global broadband market rebounds, says iSuppli