The second quarter 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.

The shift makes DSL the new dial-up, according to a new report by stat farm Strategy Analytics, which examines the impact that last quarter's dismal showing in new telco DSL additions will have on the industry. "The Telcos' core DSL offerings are unable to compete effectively with Cable; they must step up their already frenetic fiber roll out to stay in the game," says Strategy Analytics researcher Ben Piper. "Indeed, we are starting to see DSL become the new Dial Up." In other words, despite the advice of weak kneed investors, it's time to upgrade.

Cable appears to be better positioned because DOCSIS 3.0 upgrades are cheaper than running fiber (be it FTTN or FTTH), 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.