Tag Archives: Charter Communications

What if Nobody Shows up for BEAD?

Charter CFO Jessica Fisher recently announced that Charter will spend substantially less on pursuing BEAD grants than the company spent on RDOF. This is big news, because a natural assumption in some state broadband offices is that Charter would likely be a big player in the BEAD grant process. Charter has been a major participant in pursuing and winning State broadband grants funded by ARPA and the Capital Projects Fund.

To put this into context, Charter won about $1 billion in the RDOF reverse auction. Substantially less than that would make Charter a minor participant in the BEAD process. Fisher said part of the reason for not strongly pursuing BEAD is the unfavorable BEAD grant rules.

This will be a problem for some states if Charter doesn’t play at all. Anybody who has looked closely at the RDOF award areas understands the issue that RDOF funding was often awarded in a way that the coverage could best be described as Swiss cheese. In states where Charter won a lot of RDOF subsidy, the company is the only sensible ISP to pursue a solution for the ‘holes’ inside the current Swiss cheese areas – because if they don’t, it will be virtually impossible for any other landline ISP to affordably reach the small pockets of BEAD areas surrounded by Charter fiber areas.

Nobody outside the company knows the real motivation and decision-making process inside a company like Charter. Certainly, the complexity of applying for the BEAD grants and then reporting afterward is a believable reason for walking away from BEAD. In comparison, RDOF has very few rules other than requiring a specific technology, meeting construction goals over a long timeline, and providing a letter of credit to support each project. Charter is probably considering other issues too. For example, the company has been losing customers to FWA and due to the end of ACP. A decision not to pursue BEAD might simply be a reaction to tightening its focus on current markets.

The real concern for State Broadband Offices is that Charter might not be the only large ISP thinking of ignoring BEAD. Most states are counting on large ISPs like Charter, Comcast, Frontier, Windstream, and Brightspeed to pursue BEAD.

After anticipating the matching fund requirement, the total awards for BEAD projects will be more than $50 billion. If the big companies don’t participate, there may not be enough financial capacity in the rest of the industry to take on the matching requirements for winning BEAD grants.

Consider Comcast, which said in 2023 that it remains return-driven and will have a high bar for participating in BEAD. Comcast didn’t participate in RDOF, but it did pursue and win a substantial amount of state broadband grants.

I doubt that anybody knows what the Verizon and Frontier merger will mean in terms of BEAD. Verizon said when the merger was announced that it wants Frontier to continue with any BEAD plans. But Verizon has historically been the most disciplined fiber builders in terms of staying within a defined construction budget. It wouldn’t be shocking to see Frontier pull back from BEAD to some extent.

A lot of industry folks have predicted that a handful of big companies would win the majority of the BEAD funding. Perhaps many of them will sit it out, making it even more likely that large portions of BEAD might go to Starlink or wireless ISPs.

Charter Raising Prices Again

In a move that intrigues me, Charter (Spectrum) announced another rate increase this month. The company plans to raise the cost of basic broadband by $3, or for legacy broadband by $4. The company also will raise the rate on cable TV by $3 in some states.

The company has raised rates twice in the last year. Charter raised broadband rates by $5 in July 2023. The company then raised cable TV rates in January 2024. The company also raised the price of its low-income product by $5 per month.

I’ve been wondering if we’d continue to see big cable company rate increases, and I guess we now have our answer. There are a lot of reasons why Charter might have considered not raising rates. The company lost 72,000 broadband customers in the first quarter of this year. That’s a tiny proportional loss, only one-fourth of one percent of the company’s 29.8 million broadband customers, but analysts all predict that losses will accelerate.

Charter also has more pending risk from the end of the ACP plan than any other large ISP since the company enrolled over 4 million customers in the ACP discount plan that provided a $30 subsidy for broadband, and that recently ended. Charter is hoping to keep many of these customers and will try to move customers to the company’s Spectrum Internet Assist plan that offers 50 Mbps download speed for $24.99 per month or 100 Mbps for $29.99. It’s likely the company will still see a lot of households drop service when they can’t afford those rates.

Charter and other cable companies are seeing a lot of competition from FWA cellular broadband from T-Mobile and Verizon. Those two companies have added 8.6 million customers nationwide with a product that just launched in 2021.

The Fiber Broadband Association predicted that over 12 million homes will be newly passed with fiber in 2024, and most of that fiber will be competing against the big cable companies. It looks like that forecast was a little optimistic, but even if the final number is nine or ten million homes, Charter and the other big cable companies are under pressure to cut rates in newly competitive markets since most of the fiber providers have lower prices than cable ISPs.

But I guess the upside from a rate increase is just too hard to pass on. Nobody outside of Charter knows how many Charter customers pay the full rate. Many customers are on discounted and temporary rate plans. Charter also still sells a lot of product bundles, and customers within those bundles don’t know the cost of each component product in the bundle.

Charter has had aggressive rate increases over the last five years and has raised rates $5 per year until this smaller increase in 2024. Charter’s rates have always been significantly below Comcast broadband rates, and it’s always looked like Charter was trying to catch up.

A rate increase on basic service eventually catches up to most customers as special rates expire or bundled prices are increased. If only half of Charter’s customers pay list rates, then a $3 rate increase would add over $500 million to Charter’s bottom line in a year. The math says that even if the rate increase drives away some customers, the company will be far ahead after this rate case. Big cable companies can still rely on the fact that they are the only ISP with fast speeds in many markets.

Rate increases seem to be the new growth strategy for cable companies. For well over a decade, the Charter and Comcast customer bases grew significantly every year as broadband became more popular and more homes subscribed. The economy has also been adding over two million new living units per year, and Comcast and Charter snagged most of those new households. The stock prices of the two companies have been propped up by that reliable and never-ending growth. But we’re in an economy that will likely only add one million new living units this year. Both Charter and Comcast are now losing customers, and industry analysts all predict the rate of losses will increase significantly. An annual rate increases might be the only tool left for Charter and the other big cable companies to improve the bottom line. It will be interesting to see how many other cable companies also raise rate by the end of the year.

Comcast and Charter Losing Broadband Customers

It’s big news that both Comcast and Charter lost broadband customers in the second quarter of this year. Both companies have steadily gained customers every quarter over the last decade. It was not a surprise to me to see this happen, but it happened sooner than I would have guessed.

Comcast lost 10,000 broadband customers for the quarter, a minuscule loss for a company with over 32.1 million broadband customers. To show how surprising this loss is, the company gained 262,000 customers in the first quarter of 2022, more than 1.3 million in 2021, and almost 2 million in 2020.

Charter lost 21,000 customers in the second quarter, again a small fraction of its 30.1 million broadband customers. But the loss is a big turnaround compared to the 185,000 broadband customers the company gained in the first quarter of this year, the 1.2 million customers gained in 2021, and the 2.2 million customers gained in 2020.

Comcast blames the customer loss on two factors. One is the end of the pandemic, which implies that households are now dropping broadband since the pandemic has cooled. This is the first time I’ve heard anybody make that claim. I’d love to hear if any ISPs that read this blog are seeing that same thing. Comcast also blamed the drop on the fact that fewer people than normal moved into new homes and apartments during the second quarter. That’s another claim that we’ll be able to check when the folks who track housing release statistics.

Charter blames the loss of customers on the change in the federal subsidy for low-income homes. Charter said it lost 59,000 customers when the subsidy changed from $50 under the Emergency Broadband Benefit (EBB) program to the $30 discount on the Affordable Connectivity Plan (ACP). That’s interesting, if true, and it provides evidence that many low-income households need a substantial discount in order to afford broadband. I’d also love to hear from any ISPs that are seeing this same customer trend. But I think Charter is being disingenuous to blame the drop on the low-income programs. The math doesn’t add up, and losing 59,000 in a quarter would not drive the company into having a net loss of customers.

There was something that both companies conspicuously didn’t claim – that the customer losses are due to competition. They are apparently not ready to make that claim yet because it makes them seem vulnerable. But it has been clear for some time that competition is nipping at the heels of the big cable companies. Telcos and other ISPs are furiously building fiber in urban areas in direct competition with cable companies. It’s hard to know fact from fiction, but fiber-based ISPs have high expectations – for example, AT&T says it plans to get a 50% penetration rate on fiber in a new neighborhood after three years.

Both companies are not acknowledging competition from the cellular carriers, which are selling unlimited 100 Mbps FWA broadband at an affordable price. Both cable companies have recently said they don’t fear competition from the FWA product. It’s too early to know how much of a threat wireless broadband will be – and it will take some time before we can see if the cellular networks can handle a lot of simultaneous broadband users and still maintain speeds. But for now, Verizon and T-Mobile are picking up a lot of new customers  – together, the two companies gained half of all new broadband customers nationwide in the first quarter of this year.

The stock prices of both cable companies have benefitted for years from continuous growth since analysts could count on each company growing both customers and revenues year after year. It’s going to be interesting to see what a loss of customers means to the long-term stock prices.

This new trend might change a lot of dynamics in the industry. I’ve said for years that the cable companies were on a steady march to have $100 broadband – and they still might be. It might be that raising rates is now the only path for them to increase the bottom line. But will these companies be able to raise rates in an increasingly competitive market? It seems unlikely that they will be able to keep increasing the price for the basic products, but the companies might be hoping for a continuation of the trend of customers upgrading to faster products. Both cable companies are aggressively selling cellular services, and each gained over 300,000 new cellular customers in the second quarter. But we don’t know how much margin the cellular business adds to their bottom lines.

Charter might have an easier path than Comcast to curtail losses and possibly grow again. Charter is aggressively seeking grant funding to expand into the rural areas around existing markets. These are areas that have had poor rural broadband, and Charter is building fiber in these markets – much to the annoyance of its urban customers who are not getting upgraded to Charter fiber. But this expansion should add a lot of new customers over the next four or five years. I think Charter realizes that in these markets, they will benefit by being the only provider of fast broadband – the first time the company will be operating in areas where it will largely be a monopoly.

The fact that the two biggest ISPs lost customers is a bellwether event that shows that the broadband market is now up for grabs. Who will be the big winners that fill the void if Comcast and Charter are not grabbing most of the new customers each quarter?

Charter Considering RDOF Grants

Charter let the world know that it plans to pursue RDOF grant funding in its most recent 8-K filing with the Securities and Exchange Commission. The company says that it might pursue grant funding to build to ‘multi-million passings’ involving ‘multi-billion investments’. It’s an interesting strategy. Charter already serves rural county seats and other towns across the country which puts them close to many of the areas where RDOF funding is available.

The RDOF grants cover the most rural and remote pockets of customers in the country. While there are some small rural towns included in the RDOF grant footprint, most of the customers covered by the grants are truly rural, consisting of farms and scattered homes in rural counties.

Charter will have to make some technology choices about how to serve rural America. The company can win the most money in the grant process if they file as a gigabit-speed provider. Gigabit speeds are available today with fiber technology and also with the hybrid fiber-coaxial networks operated by Charter and other cable companies. The RDOF grants can be awarded to technologies that support speeds over 25/3 Mbps. However, the grant includes incentives to favor ISPs willing to use faster technologies.

Charter could pursue slower technologies, like fixed wireless, but that funding is harder to win. To date, none of the big cable companies have ventured into wireless technology, other than a few trials. It’s always been a bit of a mystery why Charter and other cable companies haven’t erected wireless antennae at the fringes of their network to cheaply capture customers just out of reach of the HFC networks. My theory has always been that big cable companies are not nimble enough to handle drastically different technology platforms since all of their processes are designed for around coaxial and fiber technologies.

Charter is likely considering building fiber-to-the-home networks if they win RDOF grant funding. The hybrid fiber-coaxial technology that cable companies use in urban areas is poorly suited to serving scattered rural customers. The signal on an HFC network has to be boosted every two miles or so, and every time the signal is amplified some of the effective bandwidth carried on the network is lost. It would be a major challenge to maintain gigabit speeds required by the grants on a rural HFC network. It would only be possible with lots of fiber and tiny neighborhood nodes serving only a few homes. Charter has often cited the technology challenges of uses HFC technology in low-density areas as the reason it doesn’t expand outward from existing markets – and those reasons still hold true.

Charter claims to have expanded to add 1.5 million homes to its existing networks over the last two years, and in the 8-K filing says these are mostly rural customers. However, from what I’ve heard, most of these new Charter neighborhoods are in small subdivisions surrounding existing Charter markets. Charter has not been building rural networks to reach 1.5 million farms.

Charter and the other big cable companies have quietly introduced last-mile fiber technology into their networks. When cable companies build into new subdivisions today, they mostly do so with fiber technology.

It would be interesting if Charter’s strategy is to use the grant money to build fiber to farms. I know plenty of other ISPs considering the same business plan in places where there is enough RDOF grant funding available to make a business case.

There is no guarantee that Charter will ultimately win any grant funding and filing the grant short form on July 15 only gives Charter the option to participate in the auction in October. However, if the company bids in the auction, it will be good news for markets where Charter would build fiber technology. The big downside to the RDOF grant process is that in markets where no ISPs propose to build gigabit technology, the funding could end up going to satellite broadband providers – and there is no rural neighborhood that would prefer Viasat over Charter.

Charter Asks the FCC to Allow Data Caps

In a move that was probably inevitable, Charter has petitioned the FCC to allow the company to begin implementing broadband data caps. Charter has been prohibited from charging data caps as part of an agreement with the FCC when the agency approved the merger with Time Warner Cable in 2016. Charter is also asking the FCC to lift another provision of the merger agreement that prohibits the company from imposing interconnection fees on Netflix and other companies that generate large amounts of web data.

There was one other requirement of the original merger agreement that the FCC already modified in 2017. Charter had voluntarily agreed to pass 2 million new homes within five years of the merger agreement. The original agreement with the FCC required Charter to compete against other cable companies, but in 2017 that was changed to require Charter to instead pass 2 million new homes.

The merger agreement between the FCC and Charter is in effect until May 2023, but the original deal allowed Charter to ask to be relieved of the obligations after four years, which is the genesis of this request. If granted, the two changes would occur in May 2021.

Charter is asking to lift these restrictions now because the original order allowed them to do so this year. There seems a decent likelihood that the FCC will grant the requests since both Chairman Ajit Pai and Commissioner Michael O’Rielly voted against these merger conditions in 2016 and said the restrictions were too harsh.

What I find interesting is that Charter has been bragging to customers for the last four years about how they are the large ISP that doesn’t impose burdensome data caps on customers. This has likely given them a marketing edge in markets where the company competes against AT&T, which aggressively bills data caps.

Charter has to be jealous of the huge dollars that Comcast and AT&T are receiving from data caps. Back in 2016, there were not many homes that used more data than the 1 terabyte cap that AT&T and Comcast place on customers. However, home broadband usage has exploded, even before the COVID-19 pandemic.

OpenVault reported in early 2018 that the average home used 215 gigabytes of data per month. By the end of 2019, the average home usage had grown to 344 GB monthly. During the pandemic, by the end of March 2020, the average home used 402 GB.

What’s more telling is the percentage of homes that now use a terabyte of data per month. According to OpenVault, that’s now more than 10% of homes – including nearly 2% of homes that use more than 2 terabytes. Just a few years ago only a tiny percentage of homes used a terabyte per month of data. Charter has undoubtedly been measuring customer usage and knows the revenue potential from imposing data caps similar to Comcast or AT&T. If Charter can charge $25 for exceeding the data caps, with their 27 million customers the data caps would increase revenues by over $800 million annually – for usage they are already carrying on their network. Charter, like all of the big ISPs, crowed loudly that their networks were able to easily handle the increase in traffic due to the pandemic. But that’s not going to stop them from milking more money out of their biggest data users.

The US already has some of the most expensive broadband in the world. The US landline broadband rates are twice the rates in Europe and the Far East. The US cellular data rates rival the rates in the most expensive remote countries in the world. Data caps imposed by landline and cellular ISPs add huge amounts of margin straight to the bottom lines of the big ISPs and wireless carriers.

What saddest about all of this is that there is no regulation of ISPs and they free to charge whatever they want for broadband. Even in markets where we see a cable company facing competition with fiber from one of the telcos, there is seemingly no competition on price. Verizon, AT&T, and CenturyLink fiber cost roughly the same in most markets as broadband from cable companies, and the duopoly players in such markets gladly split the customers and the profits for the benefit of both companies.

I’ve written several blogs arguing against data caps and I won’t repeat the whole argument. The bottom line is that it doesn’t cost a big ISP more than a few pennies extra to provide service to a customer that uses a terabyte per month at home compared to a home that uses half that. Data cap revenue goes straight to the bottom line of the big ISPs. For anybody that doesn’t believe that, watch the profits at Charter before and after the day when they introduce data caps.

Broadband Stats for 2019

Leichtman Research Group recently released the broadband customer statistics for the end of 2019 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than Cox, which is estimated.

The numbers are lower than broadband customers these same companies report to the FCC, and I think that most of the difference is 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 might count that as 1 customer, whereas for FCC reporting they are likely to count the number of apartment units served.

4Q 2019 2019 Change % Change
Comcast 28,629,000 1,407,000 5.2%
Charter 26,664,000 1,405,000 5.6%
AT&T 15,389,000 (312,000) -2.0%
Verizon 6,956,000 (5,000) -0.1%
Cox 5,170,000 110,000 2.2%
CenturyLink 4,678,000 (134,000) -2.8%
Altice 4,187,300 71,900 1.7%
Frontier 3,500,000 (235,000) -6.3%
Mediacom 1,328,000 64,000 5.1%
Windstream 1,049,300 28,300 2.8%
Consolidated 784,165 5,195 0.7%
WOW 781,500 21,900 2.9%
Cable ONE 773,000 39,000 5.3%
TDS 455,200 31,800 7.5%
Atlantic Broadband 451,463 25,857 6.1%
Cincinnati Bell 426,700 1,100 0.3%
101,222,628 2,525,052 2.6%

Leichtman says this group of companies represents 96% of all US broadband customers. For the year these large ISPs collectively saw growth that annualizes to 2.6%.

The customer additions for 2019 for these large ISPs are just slightly higher than customers additions for 2018. The cable companies performed a little better in 2019 while the losses continue to accelerate for the big telcos. The big telco losers for the year are Frontier, which lost 6.3% of its customer base, AT&T (lost 2.0 %) and CenturyLink (lost 2.8%). AT&T claims to have added 1.1 million customers to fiber for the year, so they are still losing a lot of customers on DSL. Frontier is a total disaster and there may be no recovery for the company if they keep losing broadband customers at a pace of over 6% annually.

‘                                        2018                 2019

Cable Companies        2,987,721        3,144,657

Telcos                           ( 472,124)        ( 619,605)

Total                             2,425,597        2,525,052

The two best-performing companies were again Comcast and Charter, which each added over 1.4 million customers for the year while the rest of the ISPs, including cable companies, collectively lost half a million customers.

One note on the above numbers – the TDS and Cable One numbers include adjustments due to small acquisitions).

The Dirty Secret of Coaxial Broadband

The US has clearly pinned our hopes for providing modern broadband on the big cable companies. At the end of 2019, the big cable companies had almost 68 million customers compared to 33 million for the big telcos. Any discussion of broadband in urban markets is mostly a discussion of big cable company broadband. Cable companies will continue to grow market dominance as urban DSL customers continue to migrate to cable modem. In 2019 the big cable companies added 3.1 million customers while the telcos lost over 600,000 customers.

The big cable companies have all advertised to their customers that they had upgraded to the latest technology in DOCSIS 3.1 and can now provide gigabit broadband – for an expensive price in most markets set well over $100 per month.

It’s easy to think of urban cable systems as up-to-date and high tech and ready and able to deliver fast broadband speeds. While this is true in some cities and in some neighborhoods, the dirty secret of the cable industry is that their networks are not all up to snuff. Everybody is aware of the aging problems that have plagued the telephone copper network – but it’s rare to hear somebody talking about the aging of the cable company copper networks.

Most of the cable networks were built in the 1970s, with some even a little older. Just like with telephone copper networks the coaxial networks are getting old and a network built around 1970 is now fifty years old.

Cable coaxial networks suffer more from deterioration than do telephone copper networks. The copper wires in a coaxial system are much larger and the wires hanging on poles act like a giant antenna that can receive a range of different frequencies. Any physical opening into the wire through a splice point or from aging creates a new ingress point for external frequencies – and that equates to noise on the coaxial network. Increased noise translates directly to decreased performance of the network. The capacity of the older coaxial networks is significantly lower than when the networks were first constructed.

Another issue with coaxial networks is that the type of coaxial cable used has changed over time and some of the coax used in the early networks can’t handle the capacity needed today. Some older coax has been replaced in urban networks, but not all. Coaxial networks in smaller towns still can contain a lot of older-generation coaxial cables.

These issues mean that coaxial networks don’t always perform as well as is touted by the cable companies. I can use the network in my city of Asheville NC as an example. Charter announced nationally that when it upgraded to DOCSIS 3.1 that it had a goal of raising broadband speeds everywhere to 200 Mbps. My speed at the modem is 135 Mbps. I’m not complaining about my speed and I’m glad they increased my speed, but there must be issues in the local network that stopped Charter from achieving its 200 Mbps goal.

We undertake surveys and citywide speed tests across the country and we often see that the performance of coaxial networks varies by neighborhood. We’ve seen neighborhoods where there are more outages, more variance in download speeds, and overall slower speeds than the rest of the city. These problems are almost certainly due to differences within a city of the quality of the coaxial network.

Cable companies could bring older neighborhoods up to snuff, but such upgrades are expensive. It might mean replacing a lot of drops and any runs of older coaxial cable. It might mean replacing or re-spacing amplifiers. It often means replacing all of the power taps (the devices that connect homes to the distribution cables). The upgrading effort is labor-intensive, and that means costly.

I think this means that many cities will never see another unilateral increase in broadband speeds unless the cable companies first make big investments. The cable companies have increased speeds every few years since 2000 to keep ahead of the telcos and to make customers happier with their service. I fear that since cable companies are becoming de facto monopolies in most cities that they have lost the incentive to get faster if that means spending money. The coaxial networks and speeds that we have in place today might be what we still have a decade from now, only with coaxial networks that are another ten years older.

Is OTT Service Effective Competition for Cable TV?

The FCC made an interesting ruling recently that signals the end of regulation of basic cable TV. Charter Communications had petitioned the FCC for properties in Massachusetts claiming that the properties have ‘effective competition’ for cable TV due to competition from OTT providers – in this case, due to AT&T DirecTV Now, a service that offers a full range of local and traditional cable channels.

The term effective communications is a very specific regulatory term and once a market reaches that status a cable company can change rates at will for basic cable. – the tiers that include local network stations.

The FCC agreed with Charter and said that the markets are competitive and granted Charter the deregulated status. This designation in the past has been granted in markets that have a high concentration of satellite TV or else that have a lot of alternative TV offered by a fiber or DSL overbuilder that has gained a significant share of the market.

In making this ruling the FCC effectively deregulated cable everywhere since there is no market today that doesn’t have a substantial amount of OTT content competing with cable companies. Cable providers will still have to go through the process of asking to deregulate specific markets, but it’s hard to think that after this ruling that the FCC can say no to any other petition.

From a regulatory perspective, this is probably the right ruling. Traditional cable is getting clobbered and it looks like the industry as a whole might lose 5-6 full percentage of market share this year and end up under a 65% national penetration rate. While we are in only the third year where cord cutting became a measurable trend, the cable industry customer losses are nearly identical to the market losses for landline telephone at the peak of that market decline.

There are two consequences for consumers in a market that is declared to be effectively competitive. First, it frees cable companies from the last vestiges of basic cable rate regulation. This is not a huge benefit because cable companies have been free for years to raise rates in higher tiers of service. In a competitive market, a cable provider is also no longer required to carry local network channels in the basic tier – although very few cable systems have elected this option.

I’ve seen several articles discussing this ruling that assume that this will result in an instant rate increase in these markets – and they might be right. It’s a headscratcher watching cable companies raising rates lately when higher rates are driving households to become cord cutters. But cable executives don’t seem to be able to resist the ability to raise rates, and each time they do, the overall revenue of a cable system increases locally, even with customer defections.

It’s possible that this ruling represents nothing more than the current FCC’s desire to deregulate as many things as possible. One interesting aspect of this ruling is that the FCC has never declared OTT services like SlingTV or DirecTV Now to be MVDPs (multichannel video program distributors) – a ruling that would pull these services into the cable TV regulatory regime. From a purely regulatory viewpoint, it’s hard to see how a non-MVDP service can meet the technical requirements of effective competition. However, from a practical perspective, it’s not hard to perceive the competition.

Interestingly, customers are not leaving traditional cable TV and flocking to the OTT services that emulate regular cable TV service. Those services have recently grown to become expensive and most households seem to be happy cobbling together packages of content from OTT providers like Netflix and Amazon Prime that don’t carry a full range of traditional channels. From that market perspective, one has to wonder how much of a competitor DirecTV Now was in the specific markets, or even how Charter was able to quantify the level of competition from a specific OTT service.

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.

Google Fiber Leaving Louisville

Most readers have probably heard by now that Google Fiber is leaving Louisville because of failures with their fiber network. They are giving customers two months of free service and sending them back to the incumbent ISPs in the city. The company used a construction technique called micro-trenching where they cut a tiny slit in the road, one inch wide and few inches deep to carry the fiber. Only a year after construction the fiber is popping out of the micro-trenches all over the city.

Everybody I’ve talked to is guessing that it’s a simple case of ice heaving. While a micro-trench is sealed, it’s likely that small amounts of moisture seep into the sealed micro-trench and freezes when it gets cold. The first freeze would create tiny cracks, and with each subsequent freeze the cracks would get a little larger until the trench finally fills up with water, fully freezes and ejects the fill material. The only way to stop this would be to find a permanent seal that never lets in moisture. That sounds like a tall task in a city like Louisville that might freeze and thaw practically every night during the winter.

Nobody other than AT&T or Charter can be happy about this. The reason that Google Fiber elected to use micro-trenching is that both big ISPs fought tooth and nail to block Google Fiber from putting fiber on the utility poles in the city. The AT&T suit was resolved in Google’s favor, with the Charter one is still in court. Perhaps Google Fiber should have just waited out the lawsuits – but the business pressure was there to get something done. Unfortunately, the big ISPs are being rewarded for their intransigence.

One obvious lesson learned is not to launch a new network using an untried and untested construction technique. In this case, the micro-trenches didn’t just fail, they failed spectacularly, in the worst way imaginable. Google Fiber says the only fix for the problem would be to build the network again from scratch, which makes no financial sense.

Certainly, the whole industry is going to now be extremely leery about micro-trenching, but there is a larger lesson to be learned from this. For example, I’ve heard from several small ISPs who are ready to leap into the 5G game and build networks using millimeter wave radios installed on poles. This is every bit a new and untested technology like micro-trenching. I’m not predicting that anybody pursuing that business plan will fail – but I can assuredly promise that they will run into unanticipated problems.

Over my career, I can’t think of a single example where an ISP that took a chance on a cutting-edge technology didn’t have big problems – and some of those problems were just as catastrophic as what Google Fiber just ran into. For example, I can remember half a dozen companies that tried to deploy broadband networks using the LMDS spectrum. I remember one case where the radios literally never worked and the venture lost their $2 million investment. I remember several others where the radios had glitches that caused major customer outages and were largely a market disaster.

One thing that I’ve seen over and over is that telecom vendors take shortcuts. When they introduce a new technology they are under extreme pressure to get it to market and drive new revenues. Ideally, a vendor would hold small field trials of new technology for a few years to work out the bugs. But if a vendor finds an ISP willing to take a chance on a beta technology, they are happy to let the customers of that ISP be the real guinea pigs for the technology, and for the ISP to take the hit for the ensuing problems.

I can cite similar stories for the first generation of other technologies including the first generation of DSL, WiFi mesh networks, PON fiber-to-the-home and IPTV. The companies that were the first pioneers deploying these technologies had costly and sometimes deadly problems. So perhaps the lesson learned is that pioneers pay a price. I’m sure that this failure of micro-trenching will result in changing or abandoning the technique. Perhaps we’ll learn to not use micro-trenches in certain climates. Or perhaps they’ll find a way to seal the micro-trenches against humidity. But none of those future solutions will make up for Google Fiber’s spectacular failure.

The real victims of this situation are the households in Louisville who had changed to Google Fiber – and everybody else in the City. Because of Google Fiber’s lower prices, both Charter and AT&T lowered prices everywhere in the city. You can bet it’s not going to take long to get the market back to full prices. Any customers crawling back to the incumbents from Google Fiber can probably expect to pay full price immediately – there is no real incentive to give them a low-price deal. As a whole, every household in the City is going to be spending $10 or $20 more per month for broadband – which is a significant penalty on the local economy.