Tag Archives: Altice

Is Fiber Growth Slowing?

In a recent article in LightReading, Mike Dano cites data from industry analyst Cowan that shows that some of the largest fiber builders in the country have already trimmed back their construction plans for 2023.

AT&T has the largest retrenchment and is trimming 2023 plans from 3.5 to 4 million passings back to 2 to 2.5 million. The company says that it is not changing its long-term goal to reach 30 million passings with fiber, but a cutback of this size means it won’t likely reach that target in 2025.

Lumen’s new CEO Kate Johnson said the company is taking a pause while it rethinks its path forward. In doing so, the company trimmed 2023 fiber expansion plans from 1.75 million passings to something under 1 million.

Cowen says other big ISPs will also trim plans a bit. Frontier is probably trimming 2023 plans from 1.6 million to 1.4 million passings. Altice is cutting expectations back from 1.6 million to 1.5 million. Consolidated is reducing 400,000 planned new passings to 350,000.

There are other fiber builders that don’t seem to be cutting plans. Brightspeed, Metronet, and others still seem to be on track for their 2023 plans.

But cutbacks of the size of the AT&T and Lumen plans raise some questions about the trajectory of fiber overbuilding. If construction plans announced two years ago had held steady, there was a massive push to build fiber networks to compete with cable companies. Do these cuts mean that fiber competition won’t materialize as planned?

There have been big external changes affecting the entire industry. Fiber material costs are up, as evidenced by the recent price hike announced by Corning. Prices of fiber components are up across the board for everything from conduit, handholes, drop wires, etc. A bigger cost impact is the cost of labor, with technicians labor rates rising across the industry.

Fiber construction is also not immune from interest rate increases. I already have some clients thinking of shelving fiber expansion projects until interest rates come back to earth.

All of this adds up to a lower return for fiber builders. I was always a bit mystified by the frenetic planned pace of fiber expansion craze in cities since the returns have never been spectacular. I’ve always assumed the push to build fiber has been more of a land grab as big ISPs see other fiber builders encroach on areas they want as markets. I think much of the fiber construction craze has been about either building now or getting locked out of markets in the future.

Any level of cutbacks is good news for cable companies, since the above cutbacks mean several million fewer fiber passings to compete with by the end of 2023. Any relaxing of the competitive pressure gives cable companies more time to upgrade upload speeds over the next three years. I have to wonder if the cable company’s plans to increase upload speeds play into any of the decisions to cut back on fiber expansion. It would be really interesting to sit inside the Board rooms as the big ISPs debate these strategies. The broadband environment is getting more complex by the day.

Cable Company Cellular Growing

Cable companies are starting to quietly build a significant cellular business to bundle with broadband and other products. Consider the most recent customer count from the eight largest U.S. cellular carriers:

Verizon 143.0 M
T-Mobile 110.2 M
AT&T 101.6 M
Dish 8.5 M
US Cellular 4.9 M
Comcast 4.6 M
Charter 4.3 M
C-Spire 1.2 M

It’s worth noting that AT&T has over 200 million cellular customers worldwide, which makes them the eleventh largest cellular carrier in the world, with China Mobile first with over 851 million customers.

Comcast’s Xfinity Mobile added 317,000 customers in the second quarter of this year to bring the company to a total of 4.6 million customers. Comcast mostly uses the Verizon network to complete calls. However, Comcast demonstrates the major benefit of a cable company being in the cellular business since the company is able to offload a large portion of its outgoing mobile traffic to its WiFi network. Comcast has been experimenting with the use of 600 MHz spectrum to carry some of its cellular traffic. The company purchased $1.7 billion of spectrum in the 2017 incentive auction that freed up spectrum formerly used by television channels. Comcast also purchased $458 million of CBRS spectrum in 2020. The company says it may selectively offload traffic onto licensed spectrum in places where that is cheaper than buying wholesale minutes.

Charter’s Spectrum Mobile added 344,000 mobile customers in the second quarter of the year to bring the company to 4.3 million customers. Spectrum also uses the Verizon network. Charter purchased $464 million of PAL licenses in the CBRS spectrum in 2020. Charter says it intends to place its own radios in high-traffic areas where that will save money. Charter’s CEO Brian Roberts said a few months ago that Charter saw $700 million in new revenues from cellular over the past twelve months.

Altice has been selling mobile services branded as Optimum Mobile for several years and added 33,000 customers in the second quarter, bringing the company to 231,000 total mobile customers. Altice uses the T-Mobile network.

Cox announced the launch of a mobile pilot program on August 29, launching Cox Mobile in Hampton Roads, Virginia, Omaha, Nebraska, and Las Vegas.

All of these companies have a huge potential upside. For example, the mobile customer penetration rate for both Comcast and Charter is under 10%, and both companies believe they can become major mobile players in their markets.

The cable companies face an unusual marketing challenge since each cable company is only in selected urban markets, meaning that a lot of nationwide advertising goes to waste.

The primary reason that Comcast first entered the mobile market was to develop another product that would create a stickier bundle. Comcast figured it would be hard for a customer to leave if that meant finding a new cellular carrier along with a new ISP. Cable companies are still only selling to their own broadband customers, which is a good indication bundling is still a key reason for doing this. It’s also less costly to sell cellular to households that can offload cellular traffic to the cable company broadband network.

The big three cellular carriers have continued to grow in recent years, but the cable companies have definitely made a dent in the market with almost ten million retail mobile customers. The real test for the cellular industry is going to come when Dish finally gets its act together and offers low-cost mobile service in most markets. That’s going to put price pressure on everybody else. If Dish starts a price war, as promised, we’re going to see a real shake-up.

 

 

Cable Companies Converting to Fiber

I wrote a recent blog discussing comments from Chris Sambar, AT&T’s EVP of Technology Operations who was quoted as saying that he almost feels sorry for cable companies that compete against AT&T fiber. AT&T is convinced that building fiber is a winning strategy and that the first company that builds fiber in a market will win the majority of broadband customers.

While it’s not yet a giant movement, we do see cable companies that are converting to fiber. One example comes from an announcement by Cox that it will be undertaking a project in the Hampton Roads area to upgrade its networks to 10-gigabit fiber. The build will start this year in Norfolk and will extend over time to the rest of this rapidly-growing area.

Atlantic Broadband recently announced plans to extend fiber to 70,000 passings in New England and West Virginia. This will include the communities of Concord, Dover, Somerset, Durham, and Madbury in New Hampshire and Westover, Morgantown, Granville, and Star City in West Virginia.

Altice recently renewed its pledge to convert all of its 4.4 million customers to fiber. The Chairman of Altice, Patrick Drahi, announced he would convert the company to fiber in 2015 when the company acquired Suddenlink and Cable vision. However, the conversion to fiber slowed and has only covered about one-eighth of the company’s 9.2 million passings. Altice is back in the news with an announcement that it will expand fiber to 1 million new locations in 2022, mostly in the northeast.

We can’t forget Charter, which is planning to build fiber in the suburban and rural areas surrounding its current markets. The company won bids in the RDOF reverse auction for a million rural passings. The company is expected to chase state and federal grants to fill in the pockets won in the RDOF auction.

All of these fiber plans still only represent a relatively small share of the 75.2 million broadband customers served by the eight largest cable companies. But this start of a trend towards fiber raises some interesting questions. It’s hard to tell as someone who works inside the industry, but my sense is that the general public has become convinced that fiber is the superior technology. That perception bodes well for AT&T and anybody that builds fiber to compete against a cable company.

More importantly, a preference for fiber bodes poorly in the long run for any cable company that doesn’t have plans to get faster. Converting to fiber is a tough strategic decision for a cable company to face. Many have been putting their hopes on DOCSIS 4.0 and thought they had plenty of time to make that transition. But the pandemic seems to have moved up the timeline drastically by highlighting the weakness of cable company upload speeds. In the surveys my firm has done in the last two years, we’ve consistently seen 30% of cable customers complaining that they had problems working and schooling from home. That’s a lot of people who are deciding they’d rather have somebody other than the cable companies as an ISP.

Customers Still Flock to Promotional Rates

FierceVideo and others recently reported on a survey done in June by the research firm Cowen that looked at consumer use of promotional rates.

Cowen found that 20% of big ISP subscribers are on Internet plans that have promotional rates that will expire within the next 12 months. Another 13% of subscribers are on promotional plans that will expire in a time frame longer than 12 months. Surprisingly, 10% of subscribers have price-for-life guarantees. This leaves just 57% of subscribers paying full price for ISP services.

Promotional pricing is a sensitive topic for the industry and none of the big cable companies or telcos disclose the volume or amounts of discounts they give to customers. The big ISPs are all under a lot of pressure from Wall Street, and one of the key metrics used by analysts to track the big companies is ARPU – average revenue per user. ISPs have hard decisions to make. Giving too many discounts can kill ARPU, but not offering discounts can lose customers and revenues.

Some big ISPs have been working to curtail promotional pricing. AT&T has lost nearly three million video customers in the last year and claims that the losses mostly are due to tightening the promotional pricing that was given in the past by DirecTV. It’s also been reported that Charter has been tightening its policies on promotional prices, and in particular was ending a huge volume of promotional pricing they inherited through the acquisition of Time Warner Cable.

The Cowen report highlighted the difference in discount philosophy varies by ISP. For example, the report said that 45% of Altice customers have a promotional package, Comcast has 42%, and Charter is at 32%.

The big ISPs dole out promotional discounts in a few different ways. All of the incumbent ISPs offer low prices on the web to attract new customers. These new customer discounts generally last for 12 to 24 months before customers are moved to normal pricing. The other big category of promotional discounts is discounts that are negotiated with customers, often when customers threaten to leave an ISP.

The Cowen study confirmed something that we’ve always seen in the market. The promotional prices tend to go to younger subscribers, and older customers tend to pay full price for services. It takes real effort to either change ISPs or to renegotiate pricing every year or two, and only consumers willing to go through that hassle end up with a repetitive series of promotional deals.

The statistic that surprised me was that 10% of respondents in the survey said they had lifetime rates. ISPs have been somewhat leery of using the ‘lifetime rate’ words, but over the years as ISPs increased speeds and prices on their networks they have often allowed customers to stick with slower and less expensive broadband – generally with the caveat that a customer with a grandfathered plan can make no changes without being moved to newer pricing. In my mind, there is a significant difference between grandfathering an existing plan that offers slower speeds than other customers compared to new lifetime sales promotions that offer such deals to new customers. One of the biggest advantages to the ISPs of grandfathered plans is that customers keep these plans for years, meaning no churn.

Small ISPs struggle with promotional rates. Some small ISPs that still offer video offer guaranteed bundled rates for customers who buy cable TV. But I know a number of small ISPs that have ceased offering bundled discounts since the margins on cable TV are too small to afford them.

Small ISPs also generally don’t like the hassle of always having to negotiate rates with customers seeking a discount. Negotiating with customers changes the culture in a call center and adds a lot of pressure to customer service reps – and is probably the number one reason why the public dislikes big ISP customer service.

Many small ISPs have also given up on the idea of having residential service contracts. It’s a major pain to collect from somebody who breaks a contract and drops service. Most of the small ISPs I know feel that their quality of service is superior to the competition and they don’t want to fight to keep unhappy customers.

The Quiet Growth of the Quad Play

A few years ago, some of the largest cable companies announced they were getting into the cellular business. At the time, this got a tiny amount of press but overall the press didn’t take these companies seriously or consider them to be potential major players in the cellular business.

Comcast Charter and Altice have quietly been adding cellular customers over the last three years.

  • Comcast recently reported that the company added 216,000 cellular lines during the first quarter of 2020, bringing their total lines to 2.3 million.
  • Charter added 290,000 customers in the first quarter, bringing the company to 1.4 million mobile lines.
  • Altice added 41,000 customers in the first quarter, bringing them to 110,000 mobile lines.

These growth and total customer numbers may not sound spectacular but consider that in the first quarter saw AT&T add a small number of net customers and Verizon lose a small number of net customers. These three cable companies are definitely eating into the market growth of the big carriers. Craig Moffett, the leading analyst for the communications sector declared last December that the cable companies must be considered as serious players in the cellular space.

For now, all three companies are acting as MVNOs and are purchasing wholesale cellular minutes and data from the big cellular carriers. But that won’t last forever. Comcast has made it clear that the company is in the wireless game for the long-haul. The company purchased $1.7 billion in white space spectrum in the Philadelphia market in 2017 and said that it will be bidding in the upcoming CMRS auction.

A company like Comcast doesn’t need to worry about rolling out a big national network like Dish Networks is tackling. Comcast can improve margins on the cellular business by selectively deploying cell sites in parts of markets where they have the highest traffic volumes. Comcast should be able to deploy small cells selectively in their major urban markets and be able to peel a lot of minutes off the MVNO arrangements where it makes sense. That would significantly increase their margins.

The cable companies have something in their favor that the cellular companies can’t match – the ability to bundle inexpensive cellular service in with products that customers value like home broadband. Each of the three cable companies is only offering cellular to existing customers.

Consider the Comcast plan. It’s only available to Comcast broadband customers. Customers have a choice of four data plans 1 GB for $15 per month, 3 GB for $30 per month, $10 GB for $60 per month, or unlimited data for $45 per phone. All of these plans include unlimited calling and texting. A customer can add up to 5 devices for a plan, and that can include phones for multiple family members, tablets, etc.

I have a friend who bought the Comcast plan when it first came out and it cut her family’s cellphone bills in half. The quality is as good as when they were AT&T subscribers, and their usage is likely still riding the AT&T network.

The big cellular companies have stopped growing. They’ve seen cellular prices drop over the last two years and their revenue per customer is dropping. AT&T and Verizon will start feeling real pain if the cellular companies continue to take more than half a million customers per quarter. The two companies are faced with T-Mobile greatly expanding its number of cell sites to meet the terms of the merger with Sprint. And both companies have to worried about seeing Dish Networks hit the market in two years or so with the most modern 5G network that will be software-driven.

Americans love bundles and it’s likely that the word will continue to spread that cable companies can save them money on their cellular plan. As word of mouth continues to spread that the cable companies are in the business to stay, these companies are likely to accelerate customer acquisition. The FCC was worried about losing Sprint from the market and made the T-Mobile merger contingent upon having Dish enter the cellular business. I’m guessing they didn’t take the competition from the cable companies seriously – but over time we are likely to see real competition for our cellular business.

Do Cable Companies Have a Wireless Advantage?

The big wireless companies have been wrangling for years with the issues associated with placing small cells on poles. Even with new FCC rules in their favor, they are still getting a lot of resistance from communities. Maybe the future of urban/suburban wireless lies with the big cable companies. Cable companies have a few major cost advantages over the wireless companies including the ability to bypass the pole issue.

The first advantage is the ability to deploy mid-span cellular small cells. These are cylindrical devices that can be placed along the coaxial cable between poles. I could not find a picture of these devices and the picture accompanying this article is of a strand-mounted fiber splice box – but it’s s good analogy since the size and shape of the strand-mounted small cell device is approximately the same size and shape.

Strand-mounted small cells provide a cable company with a huge advantage. First, they don’t need to go through the hassle of getting access to poles and they avoid paying the annual fees to rent space on poles. They also avoid the issue of fiber backhaul since each unit can get broadband using a DOCSIS 3.1 modem connection. The cellular companies don’t talk about backhaul a lot when they discuss small cells, but since they don’t own fiber everywhere, they will be paying a lot of money to other parties to transport broadband to the many small cells they are deploying.

The cable companies also benefit because they could quickly deploy small cells anywhere they have coaxial cable on poles. In the future when wireless networks might need to be very dense the cable companies could deploy a small cell between every pair of poles. If the revenue benefits of providing small cells is great enough, this could even prompt the cable companies to expand the coaxial network to nearby neighborhoods that might not otherwise meet their density tests, which for most cable companies is to only build where there are at least 15 to 20 potential customers per linear mile of cable.

The cable companies have another advantage over the cellular carriers in that they have already deployed a vast WiFi network comprised of customer WiFi modems. Comcast claims to have 19 million WiFi hotspots. Charter has a much smaller 500,000 hotspots but could expand that count quickly if needed. Altice is reportedly investing in WiFi hotspots as well. The big advantage of WiFi hotspots is that the broadband capacity of the hotspots can be tapped to act as landline backhaul for cellular data and even voice calls.

The biggest cable companies are already benefitting from WiFi backhaul today. Comcast just reported to investors that they added 204,000 wireless customers in the third quarter of 2019 and now have almost 1.8 million wireless customers. Charter is newer to the wireless business and added 276,000 wireless customers in the third quarter and now has almost 800,000 wireless customers.

Both companies are buying wholesale cellular capacity from Verizon under an MVNO contract. Any cellular minute or cellular data they can backhaul with WiFi doesn’t have to be purchased from Verizon. If the companies build small cells, they would further free themselves from the MVNO arrangement – another cost savings.

A final advantage for the cable companies is that they are deploying small cell networks where they already have a workforce to maintain the network. Bother AT&T and Verizon have laid off huge numbers of workers over the last few years and no longer have the fleets of technicians in all of the markets where they need to deploy cellular networks. These companies are faced with adding technicians where their network is expanding from a few big-tower cell sites to vast networks of small cells.

The cable companies don’t have nearly as much spectrum as they wireless companies, but they might not need it. The cable companies will likely buy spectrum in the upcoming CBRS auction and the other mid-range spectrum auctions over the next few years. They can use the 80 MHz of free CBRS spectrum that’s available everywhere.

These advantages equate to a big cost advantage for the cable companies. They save on speed to market and avoid paying for pole-mounted small cells. Their networks can provide the needed backhaul for practically free. They can offload a lot of cellular data through the customer WiFi hotspots. And the cable companies already have a staff to maintain the small cell sites. At least in the places that have aerial coaxial networks, the cellular companies should have higher margins than the cellular companies and should be formidable competitors.

Broadband Price Increases

Back in late 2017 Wall Street analyst Jonathan Chaplin of New Street predicted that ISPs would begin flexing their market power and within three or four years would raise broadband rates to $100. His prediction was a little aggressive, but not by much. He also predicted that we’re going to start seeing perpetual annual broadband rate increases.

Stop the Cap! reports that Charter will be raising rates in September, only ten months aftertheir last rate increase in November 2018. The company will be increasing the price of unbundled broadband by $4 per month from $65.99 to $69.99.  Charter is also increasing the cost of using their WiFi modem from $5.00 to $7.99. This brings their total cost of standalone broadband for their base product (between 100 – 200 Mbps) with WiFi to $78.98, up from $70.99. Charter also announced substantial price increases for cable TV.

Even with this rate increase Charter still has the lowest prices for standalone broadband among the major cable companies. Stop the Cap! reports that the base standalone broadband product plus WiFi costs $93 with Comcast, $95 with Cox and $106.50 with Mediacom.

Of course, not everybody pays those full standalone prices. In most markets we’ve studied, around 70% of customers bundle products and get bundling discounts. However, the latest industry statistics show that millions of customers are now cutting the cord annually and will be losing those discounts and will face the standalone broadband prices.

MoffettNathenson LLC, the leading analysts in the industry, recently compared the average revenue per user (ARPU) for four large cable companies – Comcast, Charter, Altice and Cable ONE. The most recent ARPU for the four companies are: Comcast ($60.86), Charter ($56.57), Altice ($64.58), and Cable One ($71.80). You might wonder why the ARPU is so much lower than the price of standalone broadband. Some of the difference is from bundling and promotional discounts. There are also customers on older, slower, and cheaper broadband products who are hanging on to their old bargain prices.

The four companies have seen broadband revenue growth over the last two years between 8.1% and 12%. The reason for the revenue growth varies by company. A lot of the revenue growth at Comcast and Charter still comes from broadband customer growth and both companies added over 200,000 new customers in the second quarter of this year. In the second quarter, Comcast grew at an annualized rate of 3.2% and Charter grew at 4%. This contrasts with the smaller growth at Altice (1.2%) and Cable ONE (2%), and the rest of the cable industry.

The ARPU for these companies increased for several reasons beyond customer growth. Each of the four companies has had at least one rate increase during the last two years. Some of the ARPU growth comes from cord cutters who lose their bundling discount.

For the four cable companies:

  • Comcast revenues grew by 9.4% over the two years and that came from a 4.4% growth in ARPU and 5% due to subscriber growth.
  • Charter broadband revenues grew by 8.1% over two years. That came from a 3.2% increase in ARPU and 4.9% due to subscriber growth.
  • Altice saw a 12% growth in broadband revenues over two years that comes from a 9.8% growth in ARPU and 2.2% due to customer growth.
  • Cable ONE saw a 9.7% growth in broadband revenues over two years due to a 7.5% growth in ARPU and 2.2% increase due to customer growth.

Altice’s story is perhaps the most interesting and offers a lesson for the rest of the industry. The company says that it persuades 80% of new cord cutters to upgrade to a faster broadband product. This tells us that homes cutting the cord believe they’ll use more broadband and are open to the idea of buying a more robust broadband product. This is something I hope all of my clients reading this blog will notice.

Cable ONE took a different approach. They have been purposefully raising cable cable prices for the last few years and do nothing to try to save customers from dropping the cable product. The company is benefitting largely from the increases due to customers who are giving up their bundling discount.

MoffettNathanson also interprets these numbers to indicate that we will be seeing more rate increases in the future. Broadband growth is slowing for the whole industry, including Comcast and Charter. This means that for most cable companies, the only way to continue to grow revenues and margins will be by broadband rate increases. After seeing this analysis, I expect more companies will put effort into upselling cord cutters to faster broadband, but ultimately these large companies will have to raise broadband rates annually to meet Wall Street earnings expectations.

The Metrics of Offering Cable TV

Cable TV is a big topic with my clients. New ISPs struggle with the question of adding a cable TV product to their product mix. They do surveys that show that a lot of households still want cable TV bundled with broadband. My clients that offer cable TV wonder if they should drop it as a product.

Some interesting data was recently reported by the Wall Street research firm Cowan. They were looking at cable TV margins among bigger cable companies and concluded that it’s hard for anybody but the largest cable companies to be profitable with cable.

Consider Altice, a cable company with almost 3.3 million customers. Cowan calculates that Altice spends about 80% of cable revenues to buy the underlying programming – for 2018 that was cable revenues of $813 million and programming costs of $683 million. That means a gross operating margin of only 20% even before considering any of the costs of selling, billing and maintaining the product.

The really large cable companies do better. Comcast has around 21.8 million customers and Cowan calculates that programming only costs them 60% of cable revenues. The other big cable companies like Charter and Dish Networks pay about 65% of cable revenues for programming.

This raises the interesting question if anybody who doesn’t have millions of customers can make any money at cable TV? It’s unimaginable that Altice makes money in cable with a 20% gross operating margin. ISPs all tell me that the cable TV product is the big eater of staff time. Most of the calls to customer service are about cable signal quality. Cable issues cause the majority of truck rolls. When you look at the full effort required to support cable TV there is no way that it can be done inside of a 20% operating margin.

The bigger companies are a different story. You can see why Comcast still works hard to win and keep cable customers. At a 40% operating margin, each cable customer still has significant bottom-line value to the business.

Comcast must be dismayed at finally starting to lose customers to cord cutting, having lost 120,000 in the first quarter of this year. The company has done better than any other cable company in retaining customers. They’ve got the state-of-the-art settop box that continually updates with new features. They’ve pushed TV everywhere to allow TV on any device. And yet, even Comcast is seeing the inevitable declines from cord cutting as a result of high cable prices and the lure of online alternatives.

These numbers ought to show any smaller company that there is no sensible business plan for investing in a cable TV headend. I can’t imagine why anybody would buy a new cable headend today. It’s hard to imagine covering the cost of new electronics when the margins from cable barely cover operating expenses.

I’ve done the math and if a small ISP is honest with the evaluation, it’s hard to think that cable TV for a smaller company has any net operating margin after operating expenses. This puts companies in an uncomfortable position. The national average cable penetration is still 70%, although now dropping at 6% of market annually. That still means that a lot of customers want to buy traditional cable TV and they are going to buy it from the ISP who offers cable and broadband together. All of the surveys we’ve done at CCG show that there is still a sizable portion of the residential market who won’t buy broadband without cable TV.

I hear about ISPs exiting the cable business every month. That’s the ultimate in cord cutting when the ISP drops the cable product before the customers disappear on their own.

Small Fiber Builders Making an Impact

The research firm RVA, LLC conducted a study for the Fiber Broadband Association looking at the number of homes and businesses that are now passed and/or served with fiber. The numbers show that smaller fiber providers are collectively having a big impact on the industry.

RVA found that as of September 2018 there were 18.4 million homes with fiber, up from 15 million a year earlier. To put that into perspective, at the end of 2017 there was just over 126 million US households, meaning that fiber has now made it into over 14% of US homes. What’s most impressive, though, about that finding is that 2.7% of homes got fiber in that one-year period. The number of fiber households has been creeping up slowly over the decade, but the speed of deployment is accelerating.

RVA also looked at passings and says that 39.2 million or 31% of homes are now passed with fiber. Comparing the 18.4 million fiber customers to the 39.2 million passings shows a fiber penetration rate of 47%. RVA also says that there are 1.6 million homes that are passed by two fiber providers – no doubt in the markets like Kansas City, Austin and the Research Triangle in North Carolina where Google and the incumbents both built fiber. RVA shows that when accounting for homes that have no broadband that fiber networks are achieving a 60% penetration rate.

Small fiber providers are collectively having a big impact on the industry. RVA says there are over 1,000 smaller fiber providers in the country. They quantify the overall market share of these providers as follows: smaller telcos (10.3%), fiber overbuilders (6.4%), cable companies (5.5%), municipalities (3.7%), real estate development integrators (1.1%) and electric cooperatives (0.5%).

In 2018 the small providers built to 29% of the new homes passed with the rest built by four Tier one providers. RVA didn’t identify these big providers, but clearly the biggest fiber builder right now is AT&T. The company has built fiber to over 10 million passings in the past four years and says they will reach about 14 million passings by mid-2019. A lot of the AT&T fiber passings come from an aggressive plan to build to MDUs (apartments and condominium complexes). However, the company is also making fiber available to homes within close range of its numerous existing neighborhood fiber POPs that are near to existing larger AT&T fiber customers.

The other biggest fiber builder right now is Altice. They announced a little over a year ago that they are planning to build fiber across their footprints from the Cable Vision and Suddenlink acquisitions – nearly 8 million passings. The company seems to be fulfilling that promise with a flurry of press releases in 2018 talking about active fiber deployments. Altice is currently trying to sell off some of its European fiber networks to lighten debt load and assumedly raise the cash needed to complete the US fiber build.

Most other large providers have more modest fiber plans. We know that the CenturyLink fiber expansion that was hot news just two years ago is likely now dead. Verizon is now putting its effort into fixed 5G wireless. The big cable companies all build fiber in new subdivisions but have all committed to DOCSIS 3.1 on their existing cable networks.

Looking forward a few years and most of the new fiber is likely to come from smaller providers. AT&T hasn’t announced any plans past the 2019 schedule and by then will have effectively passed all of the low-hanging fruit within range of its existing fiber network. Altice says it will take until at least 2022 to finish its fiber construction. There are no other big companies with announced plans to build fiber.

All of this is good news for the US households lucky enough to get fiber. It’s always been industry wisdom that the industry wouldn’t develop gigabit applications until there are enough fiber households to make it economically viable. While most customers on fiber probably are subscribing to speeds less than a gigabit, there ought to finally be enough gigabit fiber customers nationwide to create a gigabit market.

 

Cable TV Number 2Q 2017

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You can’t read an article about the cable industry without hearing about the erosion of customers due to cord cutting. So I thought I would take a look at the cable customers claimed by the largest cable companies at the end of the second quarters of 2016 and 2017.

2Q 2016 2Q 2017 Change
Comcast 22,396,000 22,516,000 120,000 0.5%
DirecTV 20,454,000 20,856,000 402,000 2.0%
Charter 17,312,000 17,071,000 (241,000) -1.4%
Dish 13,593,000 11,892,000 (1,701,000) -12.5%
AT&T 4,869,000 4,666,000 (203,000) -4.2%
Verizon 4,637,000 3,853,000 (784,000) -16.9%
Cox 4,330,000 4,245,000 (85,000) -2.0%
Altice 3,639,000 3,463,000 (176,000) -4.8%
Frontier 1,340,000 1,007,000 (333,000) -24.9%
Mediacom 842,000 829,000 (13,000) -1.5%
WOW 524,300 458,200 (66,100) -12.6%
Cable ONE 338,974 297,990 (40,984) -12.1%
94,275,274 91,154,190 (3,121,084) -3.3%

These companies represent more than 95% of the whole TV market. According to Leichtman Research these companies together lost around 655,000 cable customers in the second quarter of this year.

What’s most striking about the above table is that the companies in aggregate lost 3.3% or over 3.1 million customers in the last year. One has to only go back two years to see the first instance of the industry losing customers, so these losses are recent. This is reminiscent to me to what happened to telephone landlines. The losses started very slowly, but then the rate of the decline picked up year after year. There is no way to know if cable will take the same path or if the drop in customers will be slower. But I think everybody in the industry from programmers to Wall Street is concerned about losses of this magnitude.

Interestingly, for now the big cable companies are largely maintaining earnings due to rate increases for the remaining cable customers plus continued growth in broadband customers. I’ll have a blog next week looking at the state of broadband.

There are a few interesting things to note in these numbers:

  • The losses in the second quarter of 2017 are actually smaller than the losses from that same quarter of 2016. But the year-over-year losses are significantly more now than they were in the year ending with 2Q 2016.
  • Satellite TV is getting clobbered. While DirecTV is higher, it’s offset to some extent by the loss of customers at parent AT&T which is shifting customers to the satellite platform. Dish networks is the big loser. Much of their customer losses have been offset by Sling TV adding over a million customers during the last year. But it’s rumored in the industry that Sling TV is operating at almost no margin.
  • Comcast continues to buck the rest of the industry and saw a tiny gain of customers over the last year.
  • When looking at these numbers you always must remember that the industry lost customers while there were around 1.5 million new residential living units build last year (homes and apartments). The gains that these companies got from those new homes, probably at least 1 million new customers is masked by the other losses, meaning that the industry lost over 4 million customers during the last year.
  • We know that the cable companies are continuing to take broadband customers from the telcos and there has to be some of that going on in these numbers.