Is DSL broadband finally nearing its end?

One of the key reasons for DSL’s declining share of fixed broadband net additions is the speed of the ubiquitous first-generation ADSL technology, which is limited to 8Mbit/s. Consumers in many markets consider 8Mbit/s to be ‘fast enough’ (indeed, universal service obligations of 1Mbit/s or 2Mbit/s are presently being mooted in some countries), but this speed is achievable only on a small proportion of lines that use ADSL: the maximum data rate for ADSL and its newer variants ADSL2+ and VDSL decays rapidly with the increasing length of the line, giving cable- and fibre-based broadband operators the edge when it comes to offering higher-speed services. It is also often much cheaper for cablecos to move to NGA following the DOCSIS3.0 upgrade route than it is for DSL operators to build fibre closer to the home, which often makes cablecos’ case for NGA look much more attractive than that of telcos.

But speed is not the only potential limitation of DSL. Logically, as the OECD markets mature, net additions of fixed broadband lines are falling. Increasingly competitive operators are therefore competing in one or more of three areas: price, speed or content and services. Cable operators have at least a marginal advantage in all three of these areas, but the last, content and services, is their true sphere of advantage, as cable operators frequently have larger content portfolios and longer-standing relationships with content rights holders: ‘Content is king’, as many industry moguls say. Because at the core of their service bundles they have TV, spend on which seems to be relatively protected in the recession, cable operators are likely to be best positioned to maintain their share of net additions in 2009.

Where is the remaining growth coming from?

Unsurprisingly, the markets that have the largest populations are also those still showing the greatest absolute growth in fixed broadband, as shown in Table 1.

Table 1: Top 5 markets in the OECD, ranked by 2007–2008 growth [Source: Analysys Mason, 2009]

Most notable is the emergence of Mexico, the only market in the OECD demonstrating year-on-year growth above +40%, despite the recession – principally because it is behind the curve with regards to broadband and there is still significant room for growth. Mexico had a broadband site penetration of approximately 20.2% at the end of 2008 compared with an OECD average of 54.3%. The significant growth has principally come from the incumbent Telmex, which operates 74% of access lines, most of which are DSL. Cable accounts for around 20% of broadband in the country, a share that is declining.

DSL may generally be losing net additions across the OECD, but three of the five markets showing the highest absolute growth still demonstrate a strong bias towards DSL. The technology is also still evolving, with dynamic spectrum management (DSM) speed boosts that do not require extra investment in fibre. It therefore appears that the world’s dominant broadband access technology has quite a few years left.