Tag: Charter

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The Industry

Broadband Customers 1Q 2023

Leichtman Research Group recently released broadband customer statistics for the end of the first quarter of 2023 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than for Cox and Mediacom, which are estimated. Leichtman says this group of companies represents 96% of all US landline broadband customers.

The first quarter of the year shows a continuation of the trend where all of the growth in broadband is coming from T-Mobile and Verizon FWA fixed cellular wireless. Those two companies added 916,000 out of 962,000 total customer growth for the quarter. T-Mobile passed Lumen and Frontier in the quarter in terms of the total number of broadband customers.

% 1Q
1Q 2023 4Q 2022 1Q Change Change
Comcast 32,324,000 32,319,000 5,000 0.0%
Charter 30,509,000 30,433,000 76,000 0.2%
AT&T 15,345,000 15,386,000 (41,000) -0.3%
Verizon 7,528,000 7,484,000 44,000 0.6%
Cox 5,565,000 5,560,000 5,000 0.1%
Altice 4,612,700 4,632,000 (19,300) -0.4%
T-Mobile FWA 3,169,000 2,646,000 523,000 19.8%
Lumen 2,981,000 3,037,000 (56,000) -1.8%
Frontier 2,863,000 2,839,000 24,000 0.8%
Verizon FWA 1,866,000 1,473,000 393,000 26.7%
Mediacom 1,470,000 1,468,000 2,000 0.1%
Windstream 1,175,000 1,175,000 0 0.0%
Cable ONE 1,063,000 1,060,400 2,600 0.2%
Breezeline 689,903 693,731 (3,828) -0.6%
TDS 515,400 510,000 5,400 1.1%
Consolidated 369,862 367,458 2,404 0.7%
Total 112,045,865 111,083,589 962,276 0.9%
Cable 76,233,603 76,166,131 67,472 0.1%
Telco 30,777,262 30,798,458 (21,196) -0.1%
FWA 5,035,000 4,119,000 916,000 22.2%

The telcos collectively lost 21,000 customers for the quarter, but unlaying that number is the success story where telcos are collectively now adding as many customers on fiber as are being lost on DSL. After so many years of seeing Frontier bleeding broadband customers, it’s interesting to see the company now growing faster than the big cable companies. It’s hard to think that the telcos overall won be in a positive growth mode soon.

The only cable company with any significant growth is Charter – and that growth likely comes from the company now constructing fiber in some of the markets where it won the RDOF subsidies.

The only company on the list with a significant loss is Lumen, which lost 1.8% of its customers in the quarter. Lumen is also the telco with the least aggressive fiber growth plans.

There are several companies conspicuously missing from the list. It’s hard to think that Brightspeed and Google Fiber are not larger than the companies at the bottom of the list.

Categories
The Industry

Is Charter the Largest Rural ISP?

Once in a while, I see something in the industry press that gives me a pause. Telecompetitor reported that Charter CEO Chris Winfrey said on the company’s first quarter earning call that Charter is the “largest rural provider today.” As much as I work in and track the industry, I would never have connected the dots enough to think that.

I can see how Charter is on the way to being a big rural player. The company was the largest winner of the RDOF reverse auction in terms of passings and is slated to bring broadband to pass over 1 million rural homes and businesses. The company says it is ahead of schedule and has already built 40% of those passings. But does passing 400,000 homes make Charter the biggest rural provider in the country?

In the last few years, there has been an explosion of FWA fixed cellular wireless from T-Mobile and Verizon. At the end of 2022, T-Mobile had over 2.6 million FWA customers and added 524,000 in just the fourth quarter of 2022. Verizon had almost 1.5 million customers and added 389,000 in the fourth quarter. While not all of those customers are rural, it seems likely that both companies have a lot more rural customers than Charter.

It’s hard to get specific statistics from the big telcos, but it’s hard to imagine that CenturyLink and Frontier don’t still have more rural customers than Charter. In all fairness, the rural telco DSL customers are the prime target for Charter and everybody else who is building rural networks – but it’s unlikely that Charter has yet eclipsed them in customer counts.

Jonathan Chambers of Conexon wrote a recent blog that notes that electric cooperatives collectively have more rural customers than Charter.

Nobody knows who the eventual biggest rural winner will be. There are somewhere north of 10 million rural passings that will be tackled by the upcoming BEAD grants. Meanwhile, huge amounts of funding have been provided in rural America through CARES and ARPA funding administered through states or awarded by local governments. I think we’re going to have to wait for the BEAD grants to play out to see who will ultimately be the largest rural ISP.

And even at the end of those grants we might not know. I’ve been predicting that there will be a major roll-up of last-mile fiber networks, and there is no reason that won’t include rural properties. We might have to wait a decade to see who the biggest rural players will be.

I have to think that Winfrey knew his statement wasn’t factual, and I think that he was making the point that Charter is now a major player in rural America. He caught the industry’s attention through the statement which was aimed at Charter’s stockholders. We’re seeing big cable company customer counts level off after a decade of spectacular growth, and I think his message was that Charter is still a growing company.

One thing that Charter didn’t say is that whoever builds fiber in rural areas today is creating monopoly markets. It’s going to be hard for anybody to compete against rural fiber over the long run, and Charter and other companies pursuing grants are counting on being the monopoly provider across large swaths of rural areas. I see a lot of speculation asking why companies are pursuing rural broadband – and I think the appeal of having markets where a company will eventually have an 80%+ market penetration is something that pencils out well.

Categories
The Industry

A Repeat Performance for Cable 4Q 2022

The traditional cable companies lost over 6.25 million cable subscribers in 2022, up from 5.6 million in 2021. That means that almost one in every twenty homes in the country dropped traditional cable TV during the last year.

These numbers come from Leichtman Research Group, which compiles most of these numbers from the statistics provided to stockholders, except for Cox, which is privately held and estimated. Leichtman says this group of companies represents 96% of all traditional U.S. cable customers.

% 4Q Annual
4Q 2022 4Q Change Change Change
Comcast 16,142,000 (440,000) -2.7% (2,034,000)
Charter 15,147,000 (144,000) -0.9% (686,000)
DirecTV 13,100,000 (400,000) -3.0% (1,500,000)
Dish TV 7,416,000 (191,000) -2.5% (805,000)
Verizon 3,301,000 (82,000) -2.4% (343,000)
Cox 3,050,000 (90,000) -2.9% (340,000)
Altice 2,439,000 (52,800) -2.1% (293,300)
Mediacom 510,000 (15,000) -2.9% (62,000)
Breezeline 309,627 (13,411) -4.2% (37,102)
Frontier 306,000 (16,000) -5.0% (74,000)
Cable ONE 181,500 (20,500) -10.1% (79,500)
Total 61,902,127 (1,464,711) -2.3% (6,253,902)
Hulu Live 4,500,000 100,000 2.3% 200,000
Sling TV 2,334,000 (77,000) -3.2% (152,000)
FuboTV 1,445,000 214,000 17.4% 323,000
Total Cable 37,779,127 (775,711) -2.0% (3,531,902)
Total Other 24,123,000 (689,000) -2.8% (2,722,000)
Total vMvPD 8,279,000 237,000 2.9% 371,000

The losses are fairly even across the industry, with most cable providers seeing around a 10% drop in cable customers during the year. The exceptions were Charter, which lost only 4.3%, Frontier that lost almost 20%, and Cable One (Sparklight) that lost over 30% of customers. If these trends continue for another year, Charter will pass Comcast and become the largest traditional cable provider.

The magnitude of the losses are staggering, with Comcast losing over 2 million cable customers during the year and DirecTV losing 1.5 million.

To put the loss of cable customers into context, these same large companies had over 85 million cable customers at the end of 2018 and are now down to under 62 million customers.

In the fourth quarter, the three online cable alternatives that LRG tracks gained 371,000 new customers for the year, A few major online alternatives, like YouTube TV aren’t on the list since they don’t announce customer counts.

Categories
The Industry

Is the Broadband Market Mature?

Craig Moffett, of MoffettNathanson, was recently quoted in FierceTelecom asking if the broadband industry is reaching maturity. Other than in rural areas, where a lot of homes are still hungry for better broadband, the broadband penetration rate in cities is approaching 90%. It’s a fair question to ask if there is room for much more growth in the industry.

This is a question that has bounced around for the last five years. But there was still significant growth in broadband over the last few years. In 2019, national broadband subscribers grew by 2.6%. That leaped to 4.5% in the 2020 pandemic year. In 2021, broadband growth slowed to 2.8% but rebounded to 3.3% in 2022.

The 2022 growth rate is likely inflated by rural broadband growth, as practically all the overall industry growth for the year came from cellular FWA broadband provided by T-Mobile and Verizon. We can’t know for sure since those companies haven’t reported on the mix of rural and urban FWA customers.

What would a mature broadband market look like? It would first mean that annual subscriber growth would likely not be greater than the growth of total households. In recent years that has been in the 1% annual range and would mean perhaps 1.2 million new broadband subscribers each year nationally. This is a drastic change for the broadband industry. Consider Comcast and Charter, the two largest ISPs. These two companies represent almost 55% of all broadband subscribers. In 2019 the two companies grew by over 5%. In 2020 that leaped to over 7%. Growth for the two fell to 4% in 2021, but in 2022 was only around 1%. The stock price for these companies for the last decade has been based upon an ever-growing customer base – and annual rate increases.

We already have an idea of what a mature telecom market looks like by looking at the big cellular companies. Practically everybody has a cellphone, and the industry now expends huge marketing dollars in trying to pry market share from competitors.

There is one way that broadband differs from cellular in that cell service in much of the country is a commodity, meaning there is not much real difference between products or performance of the cellular carriers. This isn’t true everywhere, and in some places, one of the cellular companies has a superior network. But in most urban markets where most folks live, there isn’t a lot of difference between cell companies.

The broadband market is different because, in many markets, there is only one fast ISP – usually the cable company. Such markets are effectively broadband monopolies, and the monopoly provider doesn’t have to worry about a competitor taking market penetration. That means that if overall growth permanently slows that all of the wrestling for market share is going to happen in the markets that have both a cable company and a fiber competitor.

But there is another possibility. In markets where Verizon FiOS has competed against a cable company for many years, the two sides have reached a duopoly equilibrium – meaning that neither Verizon nor the cable company won the competition battle. We saw Verizon and the cable companies dukeing it out heavily in the early years of FiOS, but the marketing in these markets today has none of the desperation or vehemence of cellular competition. In a duopoly market, the two big players are happy to maintain a relatively steady market share – and the equilibrium is fine with both competitors as long as it doesn’t get too badly skewed.

If overall broadband growth slows, we’ll see different responses depending on the market. Markets without a major fiber provider will continue to be cable monopolies. This is where prices will go up every year. Markets that settle into a steady duopoly will compete with low-key advertised specials to lure folks back and forth between the two ISPs. The biggest marketing battles and the real competition will come from markets where a cable company is competing against an independent fiber provider other than the big telcos. When broadband growth inevitably slows, the industry will naturally change. But I don’t expect to see a clear-cut national response. A mature broadband market will differ according to the local mix of competitors.

Categories
Regulation - What is it Good For?

Hidden Unserved Locations

There is a mountain of complaints to be made about the new FCC maps. In some parts of the country there are a lot of missing rural locations, including entire subdivisions. Various ISPs have continued to exaggerate both coverage areas and broadband speeds. But even with all of the flaws there is a lot of interesting information in the new maps.

I live in Asheville, North Carolina. In the previous version of the FCC mapping the whole city and a lot of the surrounding areas were shown as having broadband available from Charter. There is also parts of the city that have fiber provided from AT&T. As you might imagine, the old maps didn’t tell the real story. The FCC mapping protocol showed an entire Census block covered by a given ISP that has even one customer in the Census block. It’s mostly this mapping rule that showed everybody here able to buy broadband from Charter.

The new maps are far more granular. If you search the map throughout the city you can find homes, businesses, and whole streets where Charter doesn’t claim to offer broadband. The AT&T coverage on the new maps shows how AT&T typically builds small fiber networks that cover only a few blocks in a given area.

Close analysis of the map shows what folks in the broadband world have always known, but were unable to prove, that the big cable companies and telcos don’t cover everybody. It is these unserved folks in the middle of cities that I call the hidden unserved locations. Such locations cannot buy the same broadband as nearby neighbors.

These little pockets came about for a variety of reasons. Some are costly to serve and the cable company decided not to reach them when the initial network was built. The cable company might not have been unable to obtain the needed rights-of-way for some reason. A house might be sitting inside of a park or other land that makes it complicated to pursue an easement. ISPs also don’t always automatically build to reach newly constructed homes, which can be a real shock to the new tenants.

In many of these cases where the cost to connect a drop is high, and an ISP often refuses to connect the location unless the customer pays for the cost of the connection. Everybody in the industry has heard the horror stories where an ISP quotes a cost of thousands, or even tens of thousands of dollars to make a connection, even inside of a city. Many homes and businesses in this situation cannot afford the big connection fee.

It’s not always the ISPs fault that the broadband isn’t available. It’s not unusual for the owners of privately-owned road not to give permission to an ISP or others to dig up the streets. There are apartment buildings where the owner decided not to allow a given ISP into the building. There are homes where the owner doesn’t want a connection and refuses to provide an easement.

In looking around Asheville I found a surprising number of such locations. I found individual homes or pockets of homes that are not claimed as served by Charter. But the real surprises came when looking at the outer portions of the city. There are parts of neighborhoods that have been bypassed for some reason, even though homes further outside of the city have service. It also looks like neighborhoods with large lots and long driveways have been selectively bypassed.

This version of the FCC maps likely still has a lot of reporting errors. Some of the homes shown as not being served might have a connection available, while some homes shown as having broadband might not be able to get it. Over time it’s hopeful that a lot of these local issues will be resolved as people use the FCC map challenge to fix the maps. But I think a lot of these situations are real. It’s not worth the effort yet with this first iteration of the maps to dig too deeply. But cities are going to be able at some point to make an inventory of locations that don’t have good broadband. At that point cities will be able to work to close the gap of the hidden unserved locations.

Categories
The Industry

Broadband Pricing Disparities in L.A.

Now that digital equity has become a hot topic. I’m starting to see studies from around the country looking at the inequities in the way that large ISPs treat customers.

One of the latest studies comes from the California Community Foundation, which looked at rates being offered to new customers in different parts of Los Angeles. Los Angeles is an odd broadband market in that Charter is a monopoly in much of the market. Charter claims to provide service in almost 96% of Census blocks, while AT&T and Frontier each only serve about a fifth of the market. Fourth is Cox, with a tiny market share. This means that a majority of customers in Los Angeles can only buy broadband from Charter, with no other landline option.

The study concentrated on Charter since they are the ubiquitous ISP, but there are findings about the other two ISPs as well. The study was done by looking at broadband products and rates that are advertised to homes scattered across the 88 separate communities in the LA area. ISPs today make offers online to customers looking to connect to broadband, and the study looked at specific offers made in different communities.

The study instantly found that the products and prices offered to residents vary widely by neighborhood. You might think that the products available online from a big ISP like Charter would be the same for the whole market or even the whole country, but there is a dramatic difference in some cases with the products and prices that are offered online.

For example, the base broadband product offered by Charter online seems to be Internet Ultra, which provides a download speed of 500 Mbps. This is the only product that was offered at every address in the study. About three-quarters of addresses were offered the 300 Mbps download product. Only about one-fourth of homes were offered the 100 Mbps broadband product.

The biggest finding from the study is that Charter offers better pricing along with better terms and conditions to wealthier neighborhoods. That is counterintuitive, and basic economics 101 says that businesses should be expected to get the highest prices out of customers who can afford it.

The examples listed in the report are devastating. In one case, Charter offered an address in Willowbrook (where the poverty rate is 8%) a 2-year special rate of $30 per month for a new subscriber to the Internet Ultra product. A home just two miles away in Watts, where the poverty rate is 31%, was offered the same product for a 1-year deal at $70 per month. In both cases, the product reverts to the $95 list price at the end of the term. This is a gigantic difference. The home in Willowbrook was offered 500 Mbps for a two-year cost of $720, while the home in Watts was offered a package that would cost $1,980 over two years.

Charter called the report misleading and said that promotional rates change all of the time. But the study was done across the city at the same time, meaning there was no big timing difference where promos had changed. Charter’s defense is that everybody eventually pays the full price.

There is no easy way for Charter to defend this. It’s obvious that somebody at the company is uploading different specials into the online portal by address or neighborhood. This can’t be random, and that means that somebody in the Charter marketing department (or, more likely, some piece of software) is making these determinations based on what others are willing to pay in each neighborhood. This feels like broadband pricing set by a sophisticated pricing algorithm like what is used for airline seats.

Charter has broken no laws, but this is still a black eye for the big ISP. The big cable companies might wonder why a fiber overbuilder does so well in new neighborhoods – but they need to look no further than the findings from this study to know why customers don’t like or trust them.

Categories
The Industry

The Outlook for Cable Company Broadband

A majority of my clients compete against one of the big cable companies, so they are always watching anything that affects the prices, technology, or performance of these companies. After a decade of unending success, 2022 has been a rough year for cable companies.

The statistic that probably matters the most to these companies is that stock prices are way down for the year. As I write this blog, Comcast has dropped 39%, Charter 46%, Altice 72%, and Cable One 61%. Stock prices are down for a lot of companies this year, but these large drops show that Wall Street has lost faith in the cable company earnings model, where the companies gained customers quarter after quarter and raised rates a healthy amount each year. For many years it wasn’t hard to predict that the cable companies were going to have a good year.

The cable companies have been losing cable customers at a rapid pace in recent years and collectively lost 2.7 million cable customers in 2021. But losses of cable subscribers were more than offset by the growth of higher-margin broadband customers. In 2021, the big cable companies collectively gained 2.8 million broadband customers as they continued to take customers away from DSL while benefitting from the surge in home broadband subscriptions during the pandemic.

But the growth in broadband customers was slowing, and in the fourth quarter of 2021, the cable companies collectively added 445,000 customers and another 482,000 in the first quarter of this year. But then the wheels came off, and the big cable companies collectively lost 60,000 customers in the second quarter of this year. While that’s a mere blip for companies that collectively have 75.6 million broadband customers, it feels like a watershed event in the broadband industry. It looks like cable is no longer the automatic king of broadband in attracting and keeping customers.

It’s not all bad news for cable companies since the biggest ones are aggressively pursuing cellular customers. It seems like this is being done to make customers stickier and less likely to churn. But at some point, the cellular business ought to add to the bottom line for the cable companies as they shift from pure cellular resale to carrying more of the cellular traffic on their own spectrum.

All of this obviously has the big cable companies examining their future. We’ve all been wondering how the cable companies would react to this accumulated bad news. We got at least one inkling of their strategy when Charter recently raised the price of standard broadband by $5 per month. It first seemed gutsy to raise prices when subscribers have stopped growing until you realize that the cable companies are not losing customers but have just stopped growing for now. A $5 increase in broadband price means over $1.8 billion in new revenue for Charter. The company would have to start bleeding customers to put a dent in that much new bottom line. I think this tells us that price increases are still on the table – the stock prices will tumble even further without the new bottom line from a price increase.

Interestingly, Charter also announced a new discount program called SpectrumOne, where the company is bundling broadband, a modem, and one line of unlimited mobile for one year. The price is $49.99 per month (for 12 months) with 300 Mbps broadband and $69.99 per month with 500 Mbps broadband. I saw a few articles pointing this out as Charter’s reaction to its lack of growth, but I see this differently. This is a one-year special only, and prices will return to normal at the end of the year. Charter has always had special promotions, and this promotion is not aimed at adding broadband customers – instead, the company is giving away cellular for a year to hook new wireless customers who have been reluctant to trust the cable company for cellular service.

There are several takeaways for ISPs competing against Charter. First, broadband prices will probably continue to rise, giving hope to competitors who follow suit with higher prices. Charter’s real push for a competitive edge is to hook a lot more folks on its cellular service, making it inconvenient for customers to break the bundle. We’ll still have to wait to see if Comcast and the other big cable companies adopt a similar tactic – but it’s one that makes a lot of sense for the bottom line.

Categories
Current News

ISP Liability

Charter was recently ordered to pay over $1.1 billion to the estate of the family of an 83-year-old Charter customer that was murdered by a Spectrum technician in 2019. A jury had originally ordered Charter to pay $337 million in compensation plus $7 billion in punitive damages. The judge lowered the punitive damages to be more in line with comparable punitive damage calculations.

This was a case that should concern all ISPs. The technician, Roy Holden, was seemingly a good technician. He had completed over 1,000 service calls with no customer complaints. It turns out that the technician had stolen credit cards and checks from a few elderly customers, but this wasn’t discovered until after the murder. Charter had done a routine background check when he was hired that showed no arrests, convictions, or other criminal behavior. There was nothing about Roy Holden that made him look any different on paper than the many technicians hired by other ISPs.

It’s likely that the award was so large due to Charter being such a large and profitable company. But even the base award of $337 million would ruin all but the largest ISPs in the country.

This is obviously a pretty rare event and, as Charter argued in court, was totally unforeseeable. How can any ISP know when it has a rogue or unbalanced technician? Unless an employee is acting erratically, it’s impossible to think that an ISP, or the many other kinds of companies that do in-home customer service calls can protect against this kind of event.

ISPs have no financial backstop for this kind of large court award. Most of my clients carry general business insurance in the range of perhaps $5 million. That level of coverage won’t come close to covering the damages awarded in this case. I don’t know many ISPs that could survive a lower award – even $20 – $50 million would ruin most of my clients.

This kind of event is rare, and I can’t imagine that insurance can be purchased to protect against it. If there is such a policy, it would have to be extraordinarily expensive, and ISPs would have a hard time justifying the premiums due to the low risk of ever having such an event.

Facility-based ISPs generally don’t carry a large amount of insurance. It’s not feasible to insure expensive networks against things like storm damage. Instead, ISPs rely on big storm damage to be covered by FEMA along with other infrastructure that is damaged in big natural disasters like storms, fires, and floods.

I suspect this award will send some ISPs to talk to their insurance agent – and they will find that there is no practical way to insure against this kind of event. But that doesn’t make ISPs any different than companies that install appliances, countertops, or air conditioners. I think this is one of those things that ISPs shouldn’t think too hard about. I’ve read articles on the issue that suggest that ISPs need a more vigorous vetting process for new employees. But realistically, that probably makes almost no difference, although it might convince a jury to set a smaller award.

Categories
The Industry

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.

 

 

Categories
The Industry

What’s The Trend for Broadband Prices?

For years, cable companies have been raising broadband prices every year. These annual rate increases meant a huge boost the earnings of the largest cable companies like Comcast and Charter. Most of the annual price increases of $3 to $5 went straight to the bottom line. While price increases don’t hit every customer immediately because of customers on term contracts, every price increase reaches every customer eventually.

It’s going to be really interesting to see if Comcast, Charter, and the other big cable companies raise prices later this year. The industry has changed, and it doesn’t seem as obvious as in the past that cable companies can raise rates and that customers will just begrudgingly go along with it.

First, the cable companies have stopped growing, and in the second quarter of this year, both Comcast and Charter experienced a tiny loss of customers. This seems to be for a variety of reasons. First, the FWA fixed cellular carriers are thriving. In the second quarter of this year, T-Mobile and Verizon added 816,000 new FWA broadband customers using 5G frequencies. The product is not as robust as cable broadband, with download speeds of roughly 100 Mbps, but FWA has faster upload speeds than cable. What’s making FWA attractive is the price of $50 – $60 for unlimited broadband – far below the prices charged by cable companies.

The cable companies have to be feeling some sting also from the large telcos and others who are building and selling fiber in cable company markets. There must be a few million customers moving to fiber annually at this point – a number that is going to grow.

The big question is if cable companies will keep raising rates in the face of customer stagnation. This can’t be an easy decision for cable companies. New revenues from raising rates go straight to the bottom line, and it is the annual rate increases that have sustained the earning growth and stock prices for cable companies. Comcast has over 32 million customers, and Charter has over 30 million, so forgoing a rate increase would mean forgoing a lot of new cash and earnings.

The strategic question is if the cable companies are willing to accelerate customer losses for the extra earnings from higher rates. Households getting a rate increase notice are going to be prompted to look around for alternatives, and many of them will find one. The time when cable companies are a monopoly in many cities is starting to come to an end.

The rest of the industry is going to watch this issue closely because it’s going to be easier to compete against the cable companies if they continue to raise rates. Higher cable broadband prices let other ISPs creep up rates and still stay competitive.

It’s interesting that almost no ISP has raised rates during this year when inflation is a major topic of conversation. One thing this shows is that there are big margins on broadband, and there is real cash pressure to raise rates to stay whole. But this also means that the big ISPs are absorbing higher labor, materials, and operating costs without charging more – and without increasing revenues through customer growth.

The biggest cable companies have other sources of revenue. Comcast and Charter both have a growing cellular business, but many analysts are speculating that it’s not generating a big profit. However, as the cable companies start utilizing licensed spectrum it might become quite profitable.

This is a really interesting time for the industry. The biggest cable companies have been the king of the hill for a decade and could do almost anything they wanted. They’ve been converting DSL customers by the millions annually while also raising rates – meaning getting doubly more profitable. Comcast and Charter are so large that they are not going to stop being the largest ISPs for a long time to come – but they are starting to show some market vulnerability, and there are plenty of ISPs willing to pounce on their markets.

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