May 14, 2008, by Carol Wilson
On the surface, the first quarter of 2008 doesn’t appear to have been any kind of turning point in the telecom industry. But people smarter than me are seeing signs of foreboding that shouldn’t be ignored.

For example, the loss of primary access lines is accelerating at the major telcos, even as cable seems to be rebounding. AT&T’s disconnect rate for primary voice lines was 10%, the highest in its history. Verizon’s was even worse, at 11%, and worst still, the company added only a net 4000 DSL lines, versus 239,000 DSL lines a year ago. And the losses weren’t limited to the biggest telcos -- Embarq lost 120,000 access lines, Windstream dropped 42,000 and SureWest telecom voice lines shrank 14%.

More importantly, says Craig Moffett of Sanford C. Bernstein & Co., those accelerating losses are too big to be offset by the broadband revenues that are growing as AT&T rolls out U-verse and Verizon continues its FiOS buildout. And, as importantly, points out Clif Holliday, author of Information Gatekeeper Inc.’s High Speed Access Report, the telcos may be losing some of those customers to cable, for good, taking them out of the broadband pool. So when U-verse or FiOS come knocking, these customers may be too happily ensconced in a cable bundle.

Amidst all this gloom and doom, there is reason for hope. AT&T did add 491,000 lines, and Verizon has gain picked up the DSL ball, both in its marketing and in offering higher-speed services, so their trend lines don’t seem irreversible. But both companies are likely to continue depending more on wireless revenues for the near future, even as they continue to invest billions in their wireline networks. They are going to have to work hard to pull customers onto those networks.

Especially since there is also new competition looming, in the shape of the WiMAX consortium featuring Sprint, Clearwire and the likes of Google and Comcast. WiMAX could quickly be a broadband competitor to telcos everywhere.

This is a good time for telcos to be bearing down hard on getting their business right, staying close to customers, mining vendors for all the innovation they are worth and pressing forward with new service offerings that match what customers say they want.

Bad news there may be, but worrying about it accomplishes little. Doing something is what counts. We are seeing signs of innovation -- Embarq’s eGo phone, SureWest’s broadband VoIP offering, the aforementioned movement on the DSL front by Verizon and AT&T’s Advanced TV push -- but will it be enough? Too early to tell.

E-mail me at cwilson3@telephonyonline.com.