Tag Archives: Atlantic Broadband

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.

Is Broadband Growth Slowing – 2Q 2019?

Leichtman Research Group recently released the broadband customer statistics for the second quarter of 2019 for the largest cable and telephone companies. Leichtman added Atlantic Broadband and TDS to their tracking list for the first time – both companies now have more customers than Cincinnati Bell, the smallest company on the list. Leichtman compiles these numbers from the statistics provided to stockholders. The numbers are lower than broadband customers counted at the FCC, and I think that most of the difference is to due to the way many of these companies count broadband to apartment buildings. If they provide a gigabit pipe to serve an apartment building they count that as 1 customer, whereas the FCC is likely counting the number of apartment units served.

2Q 2019 Added % Change
Comcast 27,807,000 209,000 0.8%
Charter 25,945,000 258,000 1.0%
AT&T 15,698,000 (39,000) -0.2%
Verizon 6,968,000 (5,000) -0.1%
Cox 5,120,000 20,000 0.4%
CenturyLink 4,750,000 (56,000) -1.2%
Altice 4,168,100 13,100 0.3%
Frontier 3,626,000 (71,000) -1.9%
Mediacom 1,303,000 15,000 1.2%
Windstream 1,034,300 1,900 0.2%
Consolidated 783,008 2,288 0.3%
WOW 765,500 (400) -0.1%
Cable ONE 681,762 3,377 0.5%
Atlantic Broadband 443,696 14,134 3.3%
TDS 433,400 5,800 1.4%
Cincinnati Bell 425,500 (1,200) -0.3%
Total 99,952,266 369,999 0.4%

Currently, these companies are seeing a composite annual rate of growth of broadband customers of 1.6% annually. These largest ISPs will surpass 100 million customers during this current quarter. Leichtman notes that these sixteen companies have added 13.5 million broadband customers over the last five years and 28.9 million over the last ten years.

These numbers raise the question if we are finally starting to see overall growth in the broadband market slow down. Consider the comparison of the second quarter of 2018 and 2019 annualized:

‘                                        2018                 2019

Cable Companies        2,987,721        2,128,844

Telcos                           ( 472,124)        ( 648,848)

Annualized Total         2,425,597        1,479,996

According to the FCC, over 85% of homes now have a broadband connection. Adjusting that statistics for rural homes that can’t get broadband, the penetration rate everywhere else is over 90%.

The growth of broadband customers added by cable company customers is slowing, with Comcast and Charter continue to be the only companies adding significant quantities of customers (over 200,000 each for the quarter).

Loss of telco broadband customers has increased over last year, mostly due to Frontier and CenturyLink losing DSL customers.

There are significant implications for cable companies if broadband growth stagnates because cable stock prices have been fueled by revenue growth driven by new broadband customers. As the number of broadband customers levels off, many industry analysts expect the companies to begin regularly raising broadband rates to meet Wall Street earnings expectations. We’ve seen the first signs of broadband rate increases over the last year, and the above slowdown is bound to rachet up the pressure on the cable companies.

Comcast’s Quiet Expansion

It’s been conventional wisdom in the industry that cable companies stick to their historic cable system boundaries and don’t really expand much. In much of the country, this is well understood and everybody can point to customers that have lived for decades just a house or two past the end of the coaxial cable network.

However, not all cable companies have stuck with this historic entrenchment. A good case in point is Comcast, which passed 53.8 million homes in 2013 but had grown that to 57.5 million passings by the end of 2017. A few of the new 3.7 million new passings came from the purchase of small cable systems, but most came through the growth of the Comcast network.

Many of the new passings came about as the result of the continued growth of urban America. As a country we’re still seeing rural residents migrate to urban centers – which are growing while rural America is mostly stagnant or even shrinking. Recent years have seen some of the largest ever growth in new housing construction – 1.5 million new living units over the last year – and Comcast gets its share of these opportunities in its franchise areas.

But the company is also expanding outward from its core cable franchise areas where that makes sense. This has mostly been done quietly with a street added here, a small neighborhood added there, and new subdivisions always pursued; Comcast is obviously looking around for growth when it can be done affordably.

The most surprising source of Comcast growth comes from expansion into areas served by other cable companies. Historically there was a gentleman’s agreement in the cable industry to not poach on neighboring franchises, but Comcast is no longer sticking to that industry norm. Over the last few years, Comcast has gotten franchises to operate in communities already served by other cable companies.

In 2017 Comcast got a franchise in Rochester, New Hampshire in an area already served by Atlantic Broadband. In 2018 Comcast got franchises in Waterford and New London, Connecticut in areas also served by Atlantic Broadband. Last year Comcast also got franchises to operate in five communities in Pennsylvania operated by Blue Ridge Cable – Warwick Township, Warwick Borough, Ephrata Township, Ephrata Borough and Lititz.

Incumbent cable companies have rarely competed with each other. One of the few exceptions was Midcontinent that overbuilt CableONE in Fargo, North Dakota in 2013. There are also two overbuilders that have built competing cable networks – RCN and WideOpenWest – but these companies started as overbuilders and were not incumbent providers.

For now, it looks like Comcast might be going after these markets to get lucrative business customers. For instance, New London, Connecticut is the home to two colleges and the Coast Guard Academy. There are some large businesses and medical centers in some of the towns in Pennsylvania. Even if Comcast only goes after large businesses that can be a big blow to the smaller cable companies already serving these markets. When I create business plans I always refer to the revenues from the few biggest customers in a community as ‘home-run’ revenues because just a few customers can make or break a business plan. Comcast will do great harm to its neighbors if they pick off their home-run customers.

Comcast has gotten so large that they probably don’t care any longer about the historic gentleman’s agreements that put a fence around a franchise area. Comcast is under constant pressure to grow revenues and profits and it’s almost inevitable that they’ll chase anything they view as low-hanging fruit. This is one of the characteristics of companies that become virtual monopolies – they almost can’t stop themselves from engaging in business practices that make money. A company as big as Comcast doesn’t make all of the decisions at the corporate level – rather, they give revenue and earnings targets to differrent parts of the company and those business units often decide to chase revenues in ways the parent might not have dictated. In many big corporations it is the bonus structure that often drives local decisions rather than corporate policy.

It will be interesting to see how this might change the nature of cable company cooperation. The cable companies have been incredibly effective in having a unified message across the country in terms of lobbying at the federal, state and local levels – what was good for one was good for all. But that’s no longer the case if Comcast starts competing with smaller neighboring cable companies. We saw this same phenomenon a few decades ago in the telephone industry and the small telcos all started lobbying separately from the big companies. The small and large telcos still sometimes agree on issues, but often they do not. It’s almost inevitable that the unified voice of the cable industry can’t survive competition between cable companies – but I also suspect Comcast doesn’t care about that.