The Industry

The Trajectory of Cord Cutting

2017 was the year that cord cutting became a real phenomenon. The industry has been talking about cord cutting for around 5 years. In the beginning the phenomenon manifested by a slowing and stalling of the growth of cable subscribers. Many industry pundits a few years ago opined that cord cutting was a minor phenomenon because they believed that people couldn’t walk away from their favorite programming.

But in 2016 the industry as a whole lost a million customers. That sounds like a lot, but in an industry with roughly 90 million customers, the hope of the industry was that cord cutting would take decades to have any major bottom line impact. 2017 then saw a loss of 2.4 million customers and the whole industry now agrees that cord cutting is real and that it is accelerating.

The big question now is the future trajectory for cord cutting – how is this going to affect the industry over the next five years? We have past experience from watching another major telecom product take a nose dive. Back in the mid-1990s almost 99% of US homes had landlines. Today that number is down to just under 44% according to surveys done annually by the Center for Disease Control (CDC). The government agency has been asking about landline penetrations as part of a much broader survey for several decades.

I would venture to say that hardly anybody in the industry can easily tell you how fast we have been losing landlines. It’s something we all know about, but I know I had no idea about the rate of decline of decline of landlines since the 1990s.

Just like with cable TV, in the early years the rate of landline loss was relatively slow. I remember being asked about landline losses in 1997, the year I started CCG Consulting. At that time the industry was losing around 1 million customers per year. But a lot of prognosticators predicted that sale of landlines would collapse since everybody was going to change to cellphones.

But the CDC statistics tell a different story. Those statistics show that by 2004 the industry still had a 93% market penetration. Since then there has been a steady decline of landline that make an almost straight line graph to end at today’s penetration rate of 44%. I doubt that there were any industry experts in 2004 who would have predicted that there would still be a 44% penetration of landlines in 2017. During the 13-year period from 2004 to 2017 roughly 4.5 million households dropped landlines each year. The rate of loss is neither accelerating or declining.

There is no reason to think that the decline of cable TV will happen in the identical fashion. But for the first five years of customer losses the two industries have nearly the same story. Losses started slowly, and even after five years the rate of loss of cable customers is still half of the annual loss of landlines.

The industries are also different. In telecom the two biggest phone companies at the beginning of the decline of landlines were Verizon and AT&T and they also have been the biggest beneficiaries of the growth of the cellphones that replace landlines. Both companies are larger and far more profitable now than they were in the mid-90s. We are unlikely to see the same thing happening in cable. It appears that cord cutters are fleeing to a wide array of programming alternatives – and most of those alternatives are not owned by the same companies that have been profiting from cable TV.

The cable companies are clearly losing customers and revenues. The two satellite TV companies alone lost 1.7 million customers just in 2017. Continued losses of that magnitude are going to quickly affect some of the biggest cable providers. The programmers are also losing paying customers at a rapid clip. When households flee to online video providers they replace traditional 200-channel lineups with much smaller ones, meaning that a lot of individual cable networks are bleeding customers.

What might make the difference between cable and landline industries is the way the industry is reacting to the losses. In the landline world we saw the emergence of lower-cost alternatives to telco landlines as the cable companies got into the business. Even today cable landlines mostly cost less than telco landlines. I would have to think that the ability for customers to cut costs helped to stave off landline losses.

But the cable industry seems to be reacting by raising rates even faster than historically. It looks like the programmers want to get as much money as possible out of the industry before it disappears. That mentality is pushing up cable rates faster than ever and high prices seem to be the major motivation behind cord cutting. My guess is that if the cable industry stays on the same trajectory as today that it’s going to lose customers far faster than the historic drop in landlines. But my crystal ball is no better than anybody else’s, so like everybody else I’ll keep watching the statistics.

One reply on “The Trajectory of Cord Cutting”

I think this time around there are 2 issues here, programming and “pipes”.

With the earlier landline vs. mobile choice, for most consumers it was only about the pipe, not their phone’s content.

With the new cord-cutting debate, the programming question gets a lot of attention; the pipes question not so much. Yes, folks likely will go to OTT (for programming) but what will they use for their pipe? Wireless or wired?

I think I understand the likely long-term future of programming more than I do future of the pipes.

For wireless, will this be fixed wireless via a traditional Big Four mobile carrier to a nearby pole — or something/somebody else?

For those who stay with a wired broadband connection for OTT, what will it be and who’ll provide it? Fiber to the user? Fiber to the curb? Coax?

Anyway you stack it, I think there’ll be a lot of fiber.

I almost wonder if it wouldn’t be cheaper for Verizon and AT&T in their incumbent areas to go straight to FTTH as opposed to stringing almost as much fiber then wrestling with all the hassles of 5G.

For the Big Two to deploy 5G in an aerial environment, they already own pole space for more cable attachments but they don’t own space for 5G equipment boxes and antenna. That will necessitate many pole replacements at $5k / pole.

In areas with underground service, those companies have to put up 100,000s of antenna poles with all the attendant permitting and residential ill will.

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