Close to 200,000 new broadband access lines were added in the entire U.K. market in the fourth quarter, and analysts at Point Topic say the recession is the culprit. Those net adds fell far short of what observers originally had been projecting before the recession, and were 100,000 less than Point Topic’s own forecasts in October 2008.

 

But the recession might not be the cause. Most, if not all of the broadband growth, must have come from users migrating from dial-up, Point Topic argues. That's the growth driver in the slowing U.S. market as well, for obvious reasons. People who do not own PCs or use the Internet do not have much incentive to buy broadband.

 

So the logical new customer is somebody who owns a PC, uses the Internet, but buys dial-up service. There are fewer of those sorts of people every year. The analogy is wired voice lines. One can point to a quarterly decline and blame the recession. And that might be a contributor, in the U.S. and U.K. markets.

 

But the underlying trend was already in place: people are abandoning wired voice lines, irrespective of the recession, and most people who want to buy broadband already do, so that market is becoming saturated. With saturation, growth rates slow.

 

But there is one change with broader implications that is worth noting. BT (News - Alert) Wholesale, which provides leased access to most of the U.K.'s broadband providers, lost 296,000 customers in the quarter while subscribers to unbundled local loop services rose 426,000.

 

A couple of explanations are feasible, the most-significant being that some serious competitors are building their own access facilities, taking wholesale traffic off  BT's wholesale network. That is a move with far-reaching consequences, as competitors with their own networks are free to create differentiated services without the constraints BT's business practices or network might impose. Cable networks offering vastly higher throughput, without the requirement to buy a voice line, are but one example.

 

Overall Point Topic estimates that the total number of broadband lines in the UK rose to about 17.23 million by the end of 2008, from 17.04 million three months earlier.

 

ISPs using local loop unbundling to provide their broadband services (mainly Carphone Warehouse (News - Alert), Sky, Tiscali and Orange) did relatively well, adding nearly 430,000 lines between them. Point Topic estimates that Virgin Media may have added about 60,000 cable modem customers as well.

 

This leaves BT Wholesale’s broadband business losing upwards of 290,000 lines, a fall of over three percent on the 8.2 million lines it was supplying at the end of September.

 

Still, Point Topic researchers attribute the quarterly results to recessionary impact.  In the July-September quarter the economy shrank by 0.6% and the number broadband adds were 20 percent below pre-recession forecasts. In the fourth quarter a fall in GDP of 1.5 percent seems to have occurred as broadband adds fell 50 percent compared to observer expectations.

 

"To say that quarterly broadband additions are reduced by 10 percent for every 0.3 percent decline in the economy as a whole is probably simplistic but it provides one indication of what to expect in 2009," Point Topic researchers say. For example, if the relationship holds and the U.K. economy shrinks by another three percent through 2009, growth could slow another 10 times.

 

But there are other explanations. U.S. broadband access providers have seen growth slowdowns as sharp as an order of magnitude (10 times) in a single quarter, largely due to marketing issues.

 

Forecasting is a very difficult art. And one of the most-difficult tasks is to make forecasts that account for changes in trend. Broadband growth logically is not helped by a recession. But recessions also logically do not account for the underlying changes in growth trends when a market is saturating, or when product tastes are changing.