A quarterly report on broadband deployment from IGI Consulting Group says the telcos' aggressive price cuts on DSL service and their marketing of service bundles is going so well that they will catch up to the cable companies in high-speed access deployment in mid-2006.

The report's author, Clif Holiday, had been projecting a 2007 crossover point for the telcos, which fell way behind their cable rivals in the early days of high-speed access and have generally trailed by a 2-to-1 margin ever since. In the third quarter of this year, however, telcos outsold cable in high-speed access 1.378 million to cable's 972,700 and are now on pace to catch up more quickly, Holiday said.

“The telcos are doing a good job at pricing for the mass market,” he said. “The cable companies are trying to compete on features and speed, but the services are close enough in speed that mass-market consumers don't want to pay more.”

Other industry analysts agree the telcos are gaining ground in high-speed access, largely by cutting prices. Still, some aren't projecting the telcos to catch up so quickly — and even question the wisdom of the price cuts.

“I see them closing the gap, but I don't see them passing,” said Theresa Mastrangelo, principal analyst with broadbandtrends.com. “Cable growth is good, too. I don't see that DSL is growing so fast that they can take over cable. I don't think the telcos have done a good job of marketing — I think they've done a good job of cutting prices.”

Ron Westfall, broadband analyst at Current Analysis, agreed that price-cutting has helped telcos close the gap but calls it “a short-term fix.”

“[Cable] will sustain the lead due to factors such as DOCSIS 3.0 with its 50 Mb/s capacity, their VoIP progress and less burdensome regulation so far,” he said. “[Cable hasn't] engaged in a price war with the telcos yet.”

Mastrangelo's numbers show third-quarter totals of 17.9 million subscribers for DSL, or 43% of the market, and 23.4 million for cable modems, or 56% of the market. She projects telcos will reach broadband parity with cable in 2009 or 2010 through a combination of DSL and fiber-to-the-premises deployments.

The analysts agreed that broadband growth has been strong this year and was exceptionally strong in the third quarter. Verizon and SBC Communications posted their highest ADSL gains ever, Holiday said, and high-speed access growth overall hit nearly 2.5 million lines, eclipsing all previous quarters.

“I'm not surprised that people are skeptical,” Holiday said. “I was, too, for a long time.”

Wall Street appears to be taking the telco threat to cable very seriously, however. According to Kagan Research, the average value of cable operators is down 14.4% since August. In her latest report, Kagan analyst Robin Flynn attributed that to investor concern about competition from the telcos in video and high-speed access, as well as aggressive satellite pricing.

The largest U.S. cable operator, Comcast, grew its revenues by 10% and added more advanced video services subscribers than expected in the third quarter but lost ground on Wall Street, as its stock price fell 5% in response to its earnings report.