This was the worst quarter ever for DSL additions, with AT&T and Verizon barely adding 100,000 broadband customers, but collectively losing 220,000 DSL customers (130,000 for Verizon, 90,000 for AT&T). Why? The slow housing market plays a role, as does DSL users migrating to fiber. Verizon's neglect of DSL infrastructure and marketing is also a reason. But the baby bells are also hampered by DSL's slower speed in the face of 10-20Mbps cable, popular cable technologies like Powerboost, and VoIP bundles.

Those discount introductory DSL tiers, made so popular a few years ago, helped convert dial-up users to broadband, resulting in record additions. But now the broadband market is saturated, and many remaining dial-up users don't want to upgrade. Now it's all about playing customer tug of war by using triple play bundles and long term contracts. Lately, it appears that cable is winning the battle.

Despite all the hype given to FiOS and U-Verse, the reality is that the majority of both company's customers are going to be served by DSL for a very long time. Verizon is probably in the best position, though even by 2010, roughly half of Verizon customers still won't have access to FiOS. AT&T's in a tougher spot, given they've decided to stick with loop-length dependent copper and could struggle once DOCSIS 3.0 is deployed.

Both AT&T and Verizon also probably won't push their next-gen services much further into their footprint, given the lower ROI for rural America. Meanwhile, cable already serves many of those rural customers because of tough local franchise agreements with build-out provisions. These are the same local franchising rules AT&T and Verizon just spent millions lobbying to eliminate so they could avoid the cost of wiring rural America.

If you folks recall, many analysts predicted the telcos would be leading the cable industry in overall broadband adoption totals by now, but they aren't. A report (pdf) by Information Gatekeepers from last May argued that the longer install times of U-Verse and FiOS and a neglect of traditional DSL offerings would have a negative impact on both telcos. Fewer broadband additions mean it's harder to offset continued landline losses.

Cable appears to be better positioned because DOCSIS 3.0 upgrades are cheaper than running fiber, and MSOs are adding VOIP customers much more quickly than the telcos are adding video subscribers. But the bells' primary strength right now is wireless, and this fight could get much more interesting once they begin serious deployment of LTE wireless broadband (AT&T claims 20Mbps wireless by 2009, though that's optimistic). Verizon's focus on urban fiber (thanks to bendable fiber) could also speed up FiOS numbers.