A Comcast Product for Cord-cutters

It’s been interesting to watch how the big cable companies have been trying to battle cord-cutting. Comcast has had a product for a while that is aimed directly at cord-cutters.  It’s labeled as Flex and is a video streaming service that is only available to Comcast broadband customers who are not buying a Comcast TV product.

Comcast hoped that Flex would be a direct competitor to Roku, Amazon Firestick, and Google Chrome. The Flex product clearly wants to keep customers who cut the cord inside the Comcast umbrella.

The product delivers 10,000 programs including Comcast content and content from other free online services like Pluto, Xumo, and Tubi. Content comes with commercials. For now, Comcast is also throwing in Comcast’s paid service Peacock for free. The Flex platform also gives customers an easy portal to watch Netflix, Amazon Prime, HBO, and Hulu.

Flex is certainly price right and currently is free for Xfinity broadband customers. When first introduced, Comcast was charging $4.95. Flex still requires the Comcast settop box and remote. I’m guessing the price came down when Comcast found few buyers willing to rent a box to get free content.

There is a big difference between Flex and competitors like Firestick or Roku in that customers can only use the apps on the platform that Comcast has installed. No additional apps for video or music services can be added to the app. This is probably the biggest disadvantage of Flex in that people are using a lot of different video apps online. I have an Amazon Firestick and it will let me add any online video app regardless of whether the app provider has a deal with Amazon.

When Comcast first introduced the Flex product, I thought the company wanted to become another superbundler like Amazon. Amazon allows customers to buy a subscription to a huge array of different online apps, and I assume Amazon gets a slice of revenue for delivering customers to partner video platforms. There are many video services for which Amazon has become the primary marketing channel. Amazon even suggests content that requires a subscription to the partner apps. The superbundler concept is likely profitable. Amazon has to be doing well taking a small slice of the revenue stream from nearly one hundred other platforms.

Amazon’s made it clear a few years ago that it wanted to become the one-stop shop for online video content, and Amazon has bundled together far more content than anybody else. But in the last year, we’ve seen the rise of proprietary platforms from CBS, Apple, Disney, and others including Comcast’s Peacock that won’t cross-market with Amazon and others. It’s not looking like any one bundler is going to be able to pull together a giant percentage of online video content.

It’s less clear how Comcast intends to benefit from Flex. I assume Comcast gets a share of ad revenues generated on platforms like Pluto. But there doesn’t seem to any other major benefit to the company for operating the Flex program, particularly since they are providing the settop box to Flex customers for free. The plan probably made financial sense at a monthly $4.95 rate, but it’s hard to see the long-term benefit to Comcast of offering a free service. Perhaps the one big benefit to Comcast is that the settop box used for Flex can also be used to control smart home and other Comcast products. Perhaps the company is using Flex to draw in customers for these other products.

Comcast has one big advantage over anybody else in the industry in that every Flex customer is already a Comcast broadband customer. That should mean that Comcast has little incremental cost for delivering the free content offered by Flex. It’s easy to forget that Netflix and all of the other online providers must maintain an expensive network to enable them to disseminate video content.

The Flex product is somewhat symbolic of the attempt for industry players to somehow be relevant in the online video market. The product doesn’t drive direct revenue for Comcast even though the company must provide a settop box. The platform is proprietary, which seems to be the new norm for video platforms. It’s one more of the many confusing choices faced by cord-cutters.

CBRS Auction Winners

The FCC held a recent auction for the  3.5GHz Citizens Band Radio Spectrum (CBRS). The auction went for 76 rounds and raised over $4.5 billion for the FCC. This auction was unique in that spectrum was licensed at the county-level awarding up to seven licensed 10 MHz channels in each county. Each PAL (Priority Access License) is good for 10 years.

CBRS spectrum can be used in several applications. The spectrum has good field operating parameters and falls in the middle between the two existing blocks of spectrum used for WiFi. This makes the spectrum ideal for rural point-to-multipoint fixed wireless broadband since it can carry a decent amount of bandwidth for a decent distance. The best aspect of this spectrum is that it’s licensed and will largely be free from interference. For the same reasons, this is also a good spectrum for cellular data.

The biggest winner in the auction was Verizon which spent $1.89 billion on the spectrum. The company landed 557 PALs licenses in 57 counties. The company needed this spectrum to fill-in mid-range spectrum for 5G. Verizon has also recently announced a fixed cellular broadband product for rural homes and this spectrum could provide an interference-free way to deliver that product from rural cell sites.

As expected, Dish networks was also a big winner and will be paying $913 million for CBRS spectrum. As the newest nationwide cellular carrier, the company needed this spectrum to fill in the holes in the cellular spectrum it already controls. The other traditional cellular companies were a no-show. AT&T didn’t buy any of the CBRS spectrum. T-Mobile only purchased 8 PALs licenses in six counties.

The largest cable companies scored big in the auction. Charter bought $464 million of spectrum, Comcast is paying $458 million for spectrum, and Cox purchased $212 million of spectrum. As the newest entrants in the cellular business, Comcast and Charter have been buying wholesale cellular broadband from Verizon – this spectrum will let them shift to their own cell sites for a lot of cellular traffic. There is also speculation that cable companies might be planning on using the new spectrum to launch a fixed-wireless product in the rural areas surrounding their cable properties. Both Charter and Cox have entered the upcoming RDOF auction that is awarding $16.4 billion for rural broadband and the companies might be planning on using this spectrum to cover any areas they can win in that reverse auction.

One of the smaller cable companies, Midcontinent Communications, spent over $8.8 million for PALs licenses. Midco already won sizable rural grants to deploy 100 Mbps broadband in Minnesota and the Dakotas. This spectrum will help the company meet those grant pledges and perhaps allow it to pursue RDOF grants.

There were a few other large bidders. One was Nextlink which provides fixed wireless broadband today in Texas, Oklahoma, Kansas, Nebraska, Iowa, and Illinois. Windstream purchased over 1,000 PALs and the traditional telco is likely going to replace aging rural copper with wireless service, while also possibly be expanding into new service territories with fixed wireless. SAL Spectrum LLC won 1,569 PALs. This company owns numerous other blocks of spectrum and it’s not clear who the user of this new spectrum might be.

The biggest news is that the auction allowed smaller bidders to win licensed spectrum. There were 228 different winners in the auction, most of which are small WISPs, telcos, and electric cooperatives. These entities benefited by the FCC’s willingness to auction the spectrum at the county level. Most previous wireless spectrum was allocated using much larger footprints, which kept small bidders from acquiring spectrum.

Say No to Data Caps

Last week I had a blog that asked why the FCC is seemingly supporting data caps by allowing caps on broadband built with federal grant money. The FCC has established grants that place premium value on fast broadband speeds and low latency but that ignores one of the most important aspects of broadband today – usability.

A broadband connection that doesn’t let homes partake in the same online world as the rest of America is inferior broadband – and there is no better example of an unusable data plan than one a low data cap. The FCC’s RDOF rules support monthly data caps of 250 gigabytes for plans offering 25/3 or 50/5 Mbps. The FCC is clearly saying to rural America – we’ll give grant money to ISPs to bring you better broadband, but we’re going to let the ISPs cripple that broadband so that they can bill you an extra $50 or $100 per month if you want to use that broadband like everybody else in the country.

Recall that ISPs that win the RDOF grants have six years to build the new networks. How will a 250 GB data caps look by the time these networks are built? OpenVault says that the average home used 274 GB per month in 2018 – already higher than the FCC’s proposed data cap. By the end of 2019 average usage had grown to 344 GB for the average home and exploded to 402 GB by March due to people and students working from home during the pandemic. Trending household usage forward until 2026 would suggest that the average home will be using more than a terabyte of data each month by then. That’s not a big stretch since more than 10% of homes are already using a terabyte or more of data today.

The FCC is not the only one to point a finger at. There are plenty of state broadband programs that have awarded grants to ISPs that have data caps. This has happened because policymakers have not viewed data caps as providing inferior broadband. This is easy to understand since just a few years the vast majority of homes used a lot less broadband than the data caps. You might recall in 2015 when there was big public pushback when Comcast tried to introduce a 300 GB data cap. At that time, Comcast said that only a tiny number of customers used more data than 300 GB per month – but in five short years, the national average data usage is significantly higher than the cap Comcast wanted to impose in 2019.

We need a new policy at the state and federal level that says that ISPs with data caps are not welcome to broadband grant funding. Not only should they not be able to impose data caps on grant-funded networks – an ISP that has routine data caps for others should be prohibited from participating in any grant funding anywhere.

There are still ISPs that say that data caps help to protect the integrity of their network. This argument went out the door when most ISPs stopped billing for data caps during the pandemic – the one time when protecting the network would have been important.

What hasn’t been said enough is that a broadband connection with a data cap is an inferior broadband connection. A home with data caps faces the monthly choice of either curtailing broadband usage or else spending a lot more for broadband. Are we going to fix the rural broadband gap by transitioning rural homes with slow broadband connections to ones with tiny data caps that cost a lot more than everybody else in the country?

It’s always been clear that data caps are mostly about greed. There is no better example of this than the AT&T rural hotspot that has a data cap that allows for as much as an extra $200 in monthly fees to a subscriber. It’s outrageous that the FCC gave grant money last year to Viasat which has tiny monthly data caps. The whole proposed 5G Fund is outrageous if billions of federal money will allow the cellular carriers to sell more rural hotspots with tiny data caps and huge monthly fees.

It’s time for broadband policymakers at all levels to categorically say no to data caps. Shame on the FCC for allowing data caps into the discussion of the RDOF grant. But also shame on Congress for not issuing a new telecom bill to stop all of this nonsense. And shame on any state policymaker or regulator who has allowed state resources to be used to support broadband with data caps. It’s time to say no.

Why Does the FCC Support Data Caps?

Most people may not have noticed that the upcoming RDOF grants allow, and even encourage ISPs to enforce data caps on customers. I have a hard time thinking of even one reason why the FCC would suggest that ISPs use data caps.

The RDOF grants have four performance tiers for ISPs, with the auction rules weighted to give preference to faster data speeds. Each of these performance tiers comes with a suggested monthly usage allotment – which means a data cap. ISPs that will deliver speeds of either 25/3 Mbps or 50/5 Mbps can introduce a data cap of 250 gigabytes or the U.S. average, whichever is higher. ISPs offering speeds of 100/20 Mbps or 1 Gbps/500 Mbps can set a data cap at 2 terabytes.

The natural question is to ask why the FCC is setting any data cap at all? Remember, this is an FCC that no longer regulates broadband, and yet they are suggesting rules that encourage ISPs that win the grant funding to introduce data caps. Past experience says that if the rules allow for data caps, the ISPs that win the money are likely to implement them.

I find the data caps for the 25/3 Mbps and 50/5 Mbps to be intriguing since ISPs can’t set the data caps at less than the US average. Who is going to measure that? The FCC doesn’t gather the kind of data needed to measure data caps around the country. Further, there are companies like CenturyLink that have data caps but that often don’t enforce them. I haven’t the foggiest idea how anybody would measure the national average data cap.

It’s important to put these data caps into perspective. The data caps on the slower products are incredibly stingy at 250 gigabytes per month.  OpenVault reported earlier this year that the average US home used 344 gigabytes of data per month in December 2019, up from 274 gigabytes a year earlier. Due to the impact of COVID-19, that number exploded to 402.5 gigabytes by the end of March. Homes being limited to using 250 gigabytes of data are being told not to use their broadband like everybody else. It’s nearly impossible for a home that has people working from home or students doing schoolwork at home to limit themselves to only 250 gigabytes of data per month.

Even the 2 terabyte data caps for faster broadband will become problematic is a few years. OpenVault says that over 10% of homes were already using more than 1 terabyte of data as of the end of the first quarter of 2020 and 1.2% were using over 2 terabytes. By the time these networks are built with RDOF money it wouldn’t be surprising for 10% of homes to be using more than the 2-terabyte cap.

With these grant rules the FCC is actively supporting ISP to introducing data caps that are smaller than the national average broadband usage at the end of 2018 and that will easily be less than half of the national average usage by the time the networks funded by the RDOF grants are constructed.

It seems like the FCC never learns any lessons. Every grant program they have administered has some major flaws. The FCC is handing out billions of dollars to provide broadband to home that don’t have it today. This program is a major boon for the rural communities that get broadband because of the grants. But with these rules, the RDOF money will be used to bring broadband to homes for the first time and immediately cripple homes from using that broadband due to data caps. For the federal government to support a 250-gigabyte data cap is an incredibly bad policy. They are saying to folks – here, we funded broadband, but don’t use it. I can’t conceive of any reason why data caps are even mentioned in the grant rules unless this is another case of bowing to the lobbyists from the big ISPs or the satellite broadband providers.

Looking at the bigger picture, it’s somewhat surprising that the FCC would take any position on things like data caps since they have given away their authority to regulate broadband. What these grant rules tells us is that this FCC would heartily support data caps if they still had that authority. This provision in this grant program provides tacit support to Comcast and AT&T to bill customers huge amounts of extra money for exceeding arbitrary and stingy data caps.

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.

Cord Cutting Accelerates in 1Q 2020

The largest traditional cable providers collectively lost over 1.7 million customers in the first quarter of 2020 – an overall loss of 2.2% in customers. This is the biggest overall drop in customers ever in a quarter. To put this loss into perspective, the big cable providers lost 18,800 customers every day.

The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the first quarter subscriber numbers compared to the end of 2019:

1Q 2020 4Q 2019 Change % Change
Comcast 20,845,000 21,254,000 (409,000) -1.9%
Charter 16,074,000 16,144,000 (70,000) -0.4%
DirecTV 15,136,000 16,033,000 (897,000) -5.6%
Dish Networks 9,012,000 9,144,000 (132,000) -1.4%
Verizon 4,145,000 4,229,000 (84,000) -2.0%
Cox 3,820,000 3,865,000 (45,000) -1.2%
AT&T U-verse 3,440,000 3,440,000 0 0.0%
Altice 3,137,500 3,179,200 (41,700) -1.3%
Mediacom 693,000 710,000 (17,000) -2.4%
Frontier 621,000 660,000 (39,000) -5.9%
Atlantic Broadband 306,252 308,638 (2,386) -0.8%
Cable One 303,000 314,000 (11,000) -3.5%
Total 77,532,752 79,280,838 (1,748,086) -2.2%
Total Cable 45,178,752 45,774,838 (596,086) -1.3%
Total Satellite 24,148,000 25,427,000 (1,029,000 -4.1%
Total Telco 8,206,000 8,639,000 (123,000) -1.5%

Some observations of the numbers:

  • Note that AT&T no longer reports customers by division, so Leichtman has reflected all of their losses as DirecTV and shown no losses for AT&T U-verse.
  • The big loser is AT&T, which lost nearly 897,000 traditional video customers between DirecTV and AT&T U-verse.
  • The big percentage loser is Frontier that lost almost 6% of its cable customers in the quarter.
  • The big cable companies fared the best, but still lost 1.3% of their customer base in the quarter.
  • Satellite TV continues to dive and lost more than 4% of customers in the quarter.

Leitchman speculated that the magnitude of the losses could be due to the impact of COVID-19. However, the story seems to be a bit more complex than that. Several of the big companies reported about the same level of disconnects as in recent quarters but saw a big drop-off in new customers buying service. It’s worth noting that the above losses were experienced even while these same companies saw an increase of over 1 million new broadband customers in the same quarter- the best growth in broadband since 2015.

The full impact of COVID-19 will likely be seen in the next quarter. There has to be an impact from over 23 million newly unemployed people this year, as of mid-May. Cutting cable is one of the most obvious ways for a household to save money.

There may be evidence that COVID-19 had an impact by the end of March. Leichtman also tracks the subscribers of the online TV services that are owned by the above companies. Collectively, there was a loss of 319,000 customers by Hulu Live, Sling TV, and DirecTV Now. Additionally, Paystation Vue exited the market in the first quarter. However, YouTube TV is reported to be growing and had over 2 million customers by the end of February.

Losses of this magnitude have to be rolling downhill in the industry. These losses mean a lot lower revenues for cable TV networks. It means a lot less franchise revenues for local governments. It means lower advertising revenues from loss of eyeballs.

COVID-19 Boosts 1Q 2020 Broadband Subscribers

Leichtman Research Group recently released the broadband customer statistics for the end of the first quarter of 2020 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. Leichtman says this group of companies represents 96% of all US landline broadband customers.

The big news is that additions in the first quarter were up nearly 85% over the number of customers added in the fourth quarter of 2019.  For the quarter, these large ISPs collectively saw growth that annualizes to 4.8%. This was the biggest quarterly overall subscriber growth since early 2015.

3/31/20 1Q Change % Change 4Q 19 Adds
Comcast 29,106,000 477,000 1.7% 443,000
Charter 27,246,000 582,000 2.2% 339.000
AT&T 15,315,000 (74,000) -0.5% (186,000)
Verizon 6,982,000 26,000 0.4% (5,000)
Cox 5,230,000 60,000 1.2% 25,000
CenturyLink 4,667,000 (11,000) -0.2% (36,000)
Altice 4,237,300 50,100 1.2% 7,000
Frontier 3,480,000 (33,000) -0.9% (55,000)
Mediacom 1,349,000 21,000 1.6% 12,000
Windstream 1,067,300 18,000 1.7% 9,300
WOW 797,600 16,100 2.1% 7,600
Cable ONE 793,000 20,000 2.6% 83,862
Consolidated 786,125 1,960 0.2% 14
TDS 460,000 4,800 1.1% 17,500
Atlantic Broadband 457,233 5,770 1.3% 5,326
Cincinnati Bell 427,500 1,800 0.4% 1,600
Total 102,401,158 1,166,530 1.2% 669,788
Total Cable 69,216,233 1,231,970 1.8% 922,788
Total Telco 33,184,925 (65,440) -0.2% (253,586)

We know that a lot of the growth was due to COVID-19, which drove employees and students to work from homes. A lot of homes likely purchased broadband for this purpose. These big ISPs also pledged to the FCC that they wouldn’t disconnect customers for non-payment during the pandemic. However, the real impact of that policy won’t show up until the second quarter.

Comcast and Charter continue to dominate the rest of industry, and accounted for 86% of total net growth for the quarter. The large cable companies collectively gained over 922,000 subscribers, which their biggest quarterly growth since 2007. The telcos collectively still lost customers for the quarter, but losses are significantly less than in 2019. The biggest telco loser was AT&T which lost 186,000 customers for the quarter. Frontier continued to lose the biggest percentage of its customer base and lost nearly 1% of its broadband customer base during the quarter.

This growth is impressive, and much of the boost has to be due to an increased need for home broadband. We’ll have to wait until later in the year to see the impact of having over 36 million people file for unemployment and for potentially millions of small businesses to close. There has been a long-running debate in the industry about whether broadband is recession-proof. Arguments can be made that homes out of work will hang onto broadband as long as they can in the hopes it can help them find work. In a few quarters, we’ll find out.

A Bad Year for the Cable Industry

The traditional cable TV industry had a miserable 2019. Collectively the biggest cable TV providers lost over 5.9 million subscribers during the year, almost 7% of the total customer base. The impacts of COVID-19, along with the already existing trends in the industry spell bad news for the industry in 2020.

I expect that customer losses will accelerate over 2019 levels. The majority of subscribers leaving traditional cable cite cost as the primary reason, and as millions of people lose their jobs, one of the first things they are going to do is to ditch traditional cable for something less expensive. For years, nationwide surveys of subscriber sentiment have shown that as many as 20% of households each year contemplate dropping traditional cable TV, but for a variety of reasons many households don’t get around to doing so. This year a lot of these homes are finally going to make the change.

The industry has also lost its largest advertising draw in sports. MoffettNathanson predicted that just losing the spring and early summer sports could cost the industry as much as $26 billion in advertising. If COVID-19 carries forward through baseball and into football season those numbers will climb much higher. The MoffettNathanson numbers also didn’t include the impact on Comcast of delaying the Olympics for a year, which are a significant piece of corporate earnings. The impact of sports advertising will be uneven throughout the industry because of contractual relationships. Many contracts require networks to continue to pay for sports rights to the various sports leagues even if the games aren’t played, but contracts also require the leagues to compensate networks for lost advertising revenue. That’s going to mean a lot of lawsuits, but the bottom line is that sports leagues and cable networks will both lose a lot of revenue.

Advertising is taking additional hits. Travel-based advertising has already disappeared. It’s also now obvious that a lot of local advertising is drying up as small businesses feel the pinch from this crisis, affecting both local TV stations and newspapers. A number of small newspapers around the country have already folded, and local television and radio stations are likely to follow.

Another big hit for the industry will come as the production of new content has slowed to a crawl. Movie and television studios have put the production of new content on hold. How long will homes remain happy crawling through the old content on Netflix, Amazon Prime, Hulu, etc?

Sports networks are in big trouble since they have no live content to share. Watching ESPN right now is downright sad for a sports fan. Sports fans might watch old playoff games on ESPN, FS1 and other networks for a few weeks, but that’s going to get quickly lose its appeal.

The programmers have already baked future rate increases into their future contracts with cable providers. With sports programming and new content both dwindling, I expect a lot of small telcos and cable companies will decide that this is a good time to ditch the cable product entirely. Half of my clients that offer cable TV have already been having internal discussions about if and when to walk away from cable – this year might provide the impetus to do so.

If there is any silver lining for the industry, it’s that this is an election year and there promises to be a lot of political advertising between now and November – at least in states with close races for President or with a heavily contested Senate race.

The cable industry was already under stress and this year ought to push it closer to the brink where the traditional cable model breaks. The industry isn’t to that brink yet and over 60% of homes are still subscribing to traditional cable TV. But as that number drops, many of the industry paradigms are going to break and the industry will either have to reinvent itself or undergo the slow death that we saw with residential landlines.

Cable Customers Plummet in 2019

The final numbers are in for 2019 and the largest cable providers collectively lost over 5.9 million customers for the year – a loss of almost 7% of customers. The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the end of 2018 and 2019:

4Q 2019 4Q 2018 Change % Change
Comcast 21,254,000 21,986,000 (732,000) -3.3%
Charter 16,144,000 16,606,000 (462,000) -2.9%
DirecTV 16,033,000 19,222,000 (3,189,000) -16.6%
Dish TV 9,394,000 9,905,000 (511,000) -5.2%
Verizon 4,229,000 4,451,000 (222,000) -5.0%
Cox 3,865,000 4,015,000 (150,000) -3.7%
AT&T U-verse 3,440,000 3,704,000 (264,000) -7.1%
Altice 3,179,200 3,286,100 (106,900) -3.3%
Mediacom 710,000 776,000 (66,000) -8.5%
Frontier 660,000 838,000 (178,000) -21.2%
Cable ONE 314,000 318,061 (4,061) -1.3%
Atlantic Broadband 308,638 347,638 (39,000) -11.2%
Total 79,530,838 85,454,799 (5,923,961) -6.9%
Total Cable 45,774,838 47,334,799 (1,559,961) -3.3%
Total Satellite 25,427,000 29,127,000 (3,700,000 -12.7%
Total Telco 8,639,000 8,993,000 (664,000) -7.4%

These losses were offset a bit as the combination of Hulu Live, Sling TV and AT&T TV collectively added just over 1 million customers. Leichtman doesn’t have subscriber numbers for YouTube TV and a few others that are not publicly reported.

Some observations of the numbers:

  • The overall loss of nearly 7% of customers represents a free fall of traditional cable TV. At the worst of the downside, landlines dropped about 5% of market share per year.
  • The big loser is AT&T, which lost nearly 4.1 million video customers between DirecTV and AT&T U-verse, and AT&T TV. The losses were so large at DirecTV that Charter moved up to become the second largest cable provider.
  • The big percentage loser is Frontier that lost 21% of its cable customers for the year.
  • The cable big companies fared the best, but this is partially due to the fact that Comcast and Charter each added 1.4 million broadband customers for the year – and added cable customers as part of that growth.
  • Cable ONE’s losses are small due to the 2019 acquisition of Fidelity.

As large as these losses are, the losses for 2020 are likely to be a lot larger. The primary reason household still give for cutting the cord is the high price of traditional cable TV. My guess is that the uncertainty of household incomes this year are going to drive many more homes to save money by migrating to lower-cost entertainment alternatives.

An End to Data Caps?

All of the major ISPs that were enforcing data caps have lifted those caps in response to the COVID-19 crisis. This includes AT&T, Comcast, Cox, Mediacom, and CenturyLink. All of these companies justified data caps as a network management tool that was in place to discourage overuse of the network. That argument no longer holds water if these ISPs eliminate the during a crisis that is overtaxing networks more than we are likely to ever see again.

These companies eliminated the caps as a result of political pressure and from a mass public outcry. The caps were eliminated to make broadband more affordable in a time when millions of people are becoming unemployed. By eliminating the caps during this crisis, these ISPs have publicly admitted that the caps were about making money and not for any issues related to network traffic.

The lame justification these ISPs gave for data caps was always weak when other large ISPs like Charter, Verizon, Altice, Frontier, and Windstream never implemented data caps. A few ISPs on that list like Frontier and Windstream have some of the weakest networks in the country yet never sought to implement data caps as a traffic control measure.

AT&T has been the king of data caps. They have data caps that kick in as low as 150 gigabytes of monthly broadband usage on DSL lines. AT&T’s fixed wireless product for rural markets has a data cap that kicks in at 250 GB. Interestingly, customers buying the 300 Mbps on fiber have a 1 terabyte data cap while customers buying gigabit broadband on fiber are allowed unlimited usage. This also proves that the data caps aren’t about traffic control – the caps are removed from the largest data users. The AT&T caps are to encourage somebody buying 300 Mbps to upgrade to the faster service. AT&T is also the king of overage charges. For DSL and fixed wireless, the overage charges are $10 for each 50 GB, with a maximum monthly overage of a whopping $200. The monthly dollar cap on 300 Mbps service is $100.

Mediacom had the next lowest data caps at 400 Mbps. Comcast and Cox have had data caps at 1 TB. It’s been reported by customers that the companies aggressively enforce the caps. CenturyLink has mostly not billed the data caps, but the fact that they eliminated the caps during this crisis likely means they were billing it to some customers.

To put these data caps in context, OpenVault says that at the end of 2019 that the average households used 344 gigabytes of data, up from 275 gigabytes a year earlier. More germane to data caps, OpenVault says that nearly 1% of homes now use 2 terabytes per of data month and 7.7% use over 1 terabyte per month. The percentage of homes using over 1 terabyte climbed from 4% a year earlier. AT&T has likely been cleaning up with data caps charges while Comcast was just starting to see some real revenue from the caps.

What remains to be seen is if these ISPs reintroduce data caps sometime later this year. They can no longer make a straight-faced claim that data caps are in place to dissuade overuse of the network. If data caps had that kind of impact on networks, then during the crisis the ISPs should have tightened the data cap threshold to protect the many new households that are working from home or doing schoolwork remotely. The data caps have always been about money, nothing else.

Unfortunately, we have no recourse other than a loud public outcry if these ISPs renew the data caps. The FCC has completely washed its hands of broadband regulation and killed its authority to do anything about data caps. Most tellingly, when FCC Chairman Ajit Pai released a plea to ISPs to “Keep Americans Connected”, that plea didn’t even mention data caps. Chairman Pai asked ISPs not to disconnect customers for not paying and asked ISPs to provide more public hotspots.

I bet that when this crisis is over that the big ISPs will quietly introduce data caps again. Even before this crisis, almost 9% of homes routinely used more than a terabyte of data, and the data caps are a huge moneymaker for the big ISPs that they are not willingly going to give up. During this crisis, a lot of routine functions are going go virtual and I expect a lot of them will stay virtual when the crisis is over. It wouldn’t be surprising a year from now to see 20% of homes routinely exceeding a terabyte of usage each month.

I think these ISPs will be making a huge mistake if they introduce data caps a few months, or even a year from now. Millions of people found themselves unable to work or school from home due to poor broadband. In the current environment a big public outcry against bad ISP behavior has a high chance of bringing Congressional action. Almost nobody, except the most partisan politicians would vote against a bill that bans data caps. The ISPs should be afraid of other restrictions that might come along with such a bill.