Bernstein's Peter Supino Says Telephone Companies Better Positioned to Chip Away at Cable's Broadband Lead
While cable operators grapple with the slowdown of broadband subscriber additions expected in the third quarter and beyond, Bernstein media analyst Peter Supino said that telephone companies, long the butt of jokes about the sluggish speeds and poor service inherent in their core digital subscriber line (DSL) service, have streamlined operations and are positioning themselves to take back significant market share. Supino pointed to AT&T’s spinoff of DirecTV,
Fueled by the slowdown of broadband subscriber additions, Wells Fargo media analyst Steven Cahall estimates that as penetration rates rise and DSL competition sputters, the cable sector could be entering a period of diminished profitability. Most cable operators have warned that subscriber additions would be lower as pandemic lockdowns disappeared and workers returned to their offices. But adding to the pressure is increased penetration of homes with annual household incomes above $25,000 — now at about 100 percent — and the continued slide of digital subscriber line (DSL) service.
Wireless subscriber growth has been off the charts in 2021, with second-quarter increases nearing records as mobile service providers like AT&T, Verizon and T-Mobile blanket the market with free offerings. But as subscriber numbers have surged, those new customers are a volatile bunch, meaning the industry may soon have to decide whether to keep heavy promotions going just to maintain the status quo or risk losing them by turning off the promotional spigot.
Cable operators are poised to report another strong year of broadband subscriber growth in 2021 on the heels of last year’s record-breaking increases, but growth could slow substantially in 2022. The momentum from 2020—where cable operators added 4 million broadband customers— should continue into 2021 as the impact from stimulus programs to boost household income and government broadband subsidy efforts should keep churn low.
Cox has agreed to purchase the commercial enterprise and carrier business of fiber company Segra from private equity company EQT Infrastructure. Terms of the deal were not disclosed, although some published reports put the value of the deal at around $3 billion. Segra, based in Charlotte (NC), is one of the largest privately-held infrastructure providers in the country. As part of the deal, EQT will retain Segra’s residential and small-to-medium sized business segment in Virginia and North Carolina.
Cable operators, bracing for a slowdown after the robust broadband growth during the height of the pandemic may be in for a surprise. Federal money from the American Rescue Plan could help maintain, and in some cases spur, high-speed data additions in both urban and rural markets, according to MoffettNathanson principal and senior analyst Craig Moffett. Cable operators added more than 4 million broadband customers in 2020, the sector’s biggest growth spurt in a decade and one that occurred as penetration levels were in the 80% range.
Cable operators smashed records in 2020, adding more than 4 million customers in the first nine months of that year, fueled in part by the pandemic. But as hopes rise that COVID-19 will loosen its grip on the country, sending more people back to offices and schools and potentially softening broadband gains, many providers are looking toward the fringes of their footprints and extending their networks deeper into less-populated areas for growth. Extending the footprint, or making “edge-outs,” is nothing new for the industry.
Moody’s Investors Service raised its rating on the cable television sector to “positive” from “negative,” fueled mainly by expected growth in broadband. Moody’s expects cash flow in the sector to rise more than 5% over the next 12-to-18 months, based on the continued rise in broadband customers due to the pandemic. Moody’s noted that cable broadband subscribers grew by about 2.5% (3.5 million customers) in Q2, and market penetration rose to 50% in the period, compared to 48% in the prior year. This despite video and voice customer declines in the 4-6% range annually.
Top cable companies quietly expand their broadband territory, ensuring growth for the foreseeable future
Cable operators, cognizant that the broadband wave the industry has been riding for more than a decade could eventually come to a halt, have quietly been building out their service footprints, expanding the pool of potential high-speed internet customers and ensuring a lengthy growth runway for their most profitable service. In the second quarter, both Charter Communications and Comcast reported record broadband subscriber growth despite the ongoing pandemic. Charter led the way with the addition of 850,000 broadband customers (588,000, when certain COVID-19 related programs are excluded).
Comcast said it has extended its free Internet Essentials broadband offer to homes through the end of the year. Comcast, as did most other cable operators, offered 60-days of free Internet service to homes with college, elementary and high school-aged children back in March as part of its response to the COVID-19 pandemic. That offer was extended to June 30 as stay-at-home orders continued. Even with most school years ended, Comcast said it has decided to extend the offer through the end of 2020.