Our Uneven Regulatory Environment

I think everybody would agree that broadband is a far more important part of the American economy than landline telephone service. While something in the range of 35% of homes still have a landline, almost every home has or wants a broadband connection. If you knew nothing about our regulatory history in the U.S., you would guess that the FCC would be far more involved with broadband issues than landline telephone issues – but they’re not. Consider some of the recent regulatory actions at the FCC as evidence of how regulation is now unbalanced and mostly looks at voice issues.

Recently the FCC took action against Magic Jack VocalTec Ltd. The FCC reached a settlement with MagicJack to pay $5 million in contributions to the Universal Service Fund. MagicJack also agreed to implement a regulatory compliance plan to stay in compliance with FCC rules.

The contributions to the Universal Service Fund come from a whopping 26.5% tax on the interstate portion of telephone service, and MagicJack has refused for years to make these payments. MagicJack has been skirting FCC rules for years – which is what allows them to offer low-price telephone service.

The FCC also recently came down hard on telcos that are making a lot of money by billing excessive access charges for calls to service like Free Conference Calling.com and chat lines. These services made arrangements with LECs that are remote and that bill access on a lot of miles of fiber transport. The FCC ruled that these LECs were ‘access stimulators’ and that the long-distance companies and their customers were unfairly subsidizing free conference calling. In one of the fastest FCC reactions I can recall, just a few months after the initial ruling the FCC also published orders denying appeals to that order.

From a regulatory perspective, these kinds of actions are exactly the sort of activity one would expect out of a regulatory agency. These two examples are just a few out of a few dozen actions the FCC has taken in the last few years in their regulation of landline telephone service. The agency has been a little less busy, but also looked at cable TV issues over the last year.

Contrast this with broadband, which any person on the street would think would be the FCC’s primary area of regulation. After all, broadband is the far most important communications service and affects far more homes and businesses than telephone service or cable TV service.  But the regulatory record shows a real dearth of action in the area of broadband regulation.

In December 2019 Congress passed the Television Viewer Protection Act that prohibits ISPs and cable companies from billing customers for devices that the customer owns. It’s odd that a law would even be needed for something so commonsense, but Frontier and some cable companies have been billing customers for devices that were sold previously to customers. In one example that has gotten a lot of press, Frontier has been billing customers a $10 fee for a router that customers purchased from Verizon before Frontier bought the property.

Frontier appealed the immediate implementation of the new law to the FCC. The telco said that due to COVID-19 the company is too busy to change its practices and asked to be able to continue the overbilling until the end of this year. In a brave regulatory move in April, the FCC agreed with Frontier and will allow them to continue to overbill customers for such devices until the end of 2020.

I was puzzled by this ruling for several reasons. From a practical perspective, the regulators in the U.S. have normally corrected carrier wrongs by ordering refunds. It’s impossible to believe that Frontier couldn’t make this billing change, with or without COVID. But even if it takes them a long time to implement it, the normal regulatory remedy is to give customers back money that was billed incorrectly. Instead, the FCC told Frontier and cable companies that they could continue to rip off customers until the end of the year, in violation of the intent of the law written by Congress.

A more puzzling concern is why the FCC even ruled on this issue. When the agency killed Title II regulation, they also openly announced that they have no regulatory authority over broadband. My first thought when reading this order was to wonder if the FCC even has jurisdiction any longer to rule on issues like data modems. However, in this case, the Congress gave them the narrow authority to rule on issues related to this specific law. As hard as the FCC tries, these little nagging broadband issues keep landing in their lap – because there is no other place for them to go.

In this case, the FCC dipped briefly into a broadband issue and got it 100% wrong. Rather than rule for the customers who were being billed fraudulent charges, and going against the intent of Congress that passed the law clarifying the issue – the FCC bought into the story that Frontier couldn’t fix their billing systems until a year after the law was passed. And for some reason, even after buying the story, the FCC didn’t order a full refund of past overbilling.

If we actually had light-touch broadband regulation, then the FCC would be able to weigh in when industry actors act badly, like happened in the two telephone dockets listed above. But our light-touch regulation is really no-touch regulation and the FCC has no jurisdiction over broadband except in snippets where Congress gives them a specific task. The FCC ruling is puzzling. We know they favor the big ISPs, but siding with Frontier’s decision to openly rip off customers seems like an odd place to make a pro-ISP stand. As much as I’ve complained about this FCC giving up their broadband regulatory authority – perhaps we don’t want this to be fixed until we get regulators who will apply the same standards to broadband as they are applying to telephone service.

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.

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.

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).

Will the Big Telcos Pursue RDOF Grants?

One of the most intriguing questions concerning the upcoming $16.4 billion RDOF grant program is if the big telcos are going to participate. I’ve asked the question around the industry and I’ve talked to folks who think the big telcos will fully wade into the reverse auctions, while others think they’ll barely play. We’re not likely to know until the auctions begin.

The big telcos were the full beneficiaries of the original CAF II program when the FCC surprisingly decided to unilaterally award the big telcos the full $9 billion in funding. In that grant program, CenturyLink received over $3 billion, AT&T almost $2.6 billion, Frontier nearly $2 billion, and Windstream over $1 billion. The telcos were supposed to upgrade much of their most rural properties to receive broadband speeds of at least 10/1 Mbps.

CenturyLink and Frontier both recently told the FCC that they are behind in the CAF II build out and didn’t meet their obligation at the end of 2019 to be 80% finished with the upgrades. From what I hear from rural communities, I think the problem is a lot more severe than just the telcos being late. Communities across the country have been telling me that their residents aren’t seeing faster speeds and I think we’re going to eventually find out that a lot of the upgrades aren’t being made.

Regardless of the problems with the original CAF II, the FCC is now offering the $16.4 billion RDOF grant program to cover much of the same areas covered by CAF II. The big telcos are faced with several dilemmas. If they don’t participate, then others are going to get federal assistance to overbuild the traditional big telco service territories. If the big telcos do participate, they have to promise to upgrade to meet the minimum speed obligations of the RDOF of 25/3 Mbps.

Interestingly, the upgrades needed to raise DSL speeds on copper to 25/3 Mbps are not drastically different than the upgrades needed to reach 10/1 Mbps. The upgrades require building fiber deeper into last-mile networks and installing DSL transmitters (DSLAMs) in the field to be within a few miles of subscribers. Fiber must be a little closer to the customer to achieve a speed of 25/3 Mbps rather than 10/1 Mbps – but not drastically closer.

I think the big telcos encountered two problems with the CAF II DSL upgrades. First, they needed to build a lot more fiber than was being funded by CAF II to get fiber within a few miles of every customer. Second, the condition of their rural copper is dreadful and much of it probably won’t support DSL speeds. The big telcos have ignored their rural copper for decades and found themselves unable to coax faster DSL speeds from the old and mistreated copper.

This begs the question of what it even means if the big telcos decide to chase RDOF funding. Throwing more money at their lousy copper is not going to make it perform any better. If they were unable to get 10/1 speeds out of their network, then they are surely going to be unable to get speeds upgraded to 25/3 Mbps.

We can’t ignore that the big telcos have a natural advantage in the RDOF auction. They can file for the money everywhere, and any place where a faster competitor isn’t vying for the money, the big telcos will have a good chance of winning the reverse auction. There are bound to be plenty of places where nobody else bids on RDOF funding, particularly in places like Appalachia where the cost is so high to build, even with grant funding.

It would be a travesty to see any more federal grant money spent to upgrade rural DSL particularly since the FCC already spent $9 billion trying to upgrade the same copper networks. The copper networks everywhere are past their expected useful lives, and the networks operated by the big telcos are in the worst shape. I’ve known many smaller telcos that tried in the past to upgrade to 25/3 on rural DSL and failed – and those companies had networks that were well-maintained and in good condition. It would be impossible to believe the big telcos if they say they can upgrade the most remote homes in the country to 25/3 Mbps speeds. Unfortunately, with the way I read the RDOF rules, there is nothing to stop the big telcos from joining the auction and from taking big chunks of the grant money and then failing again like they did with the original CAF II.

Broadband Still Growing – 3Q 2019

Leichtman Research Group recently released the broadband customer statistics for the third quarter 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 provided to investors 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 that as 1 customer, whereas for FCC reporting they likely count the number of apartment units served.

Following are the broadband customer counts for the third quarter and a comparison to the second quarter of this year.

3Q 2019 Added % Change
Comcast 28,186,000 379,000 1.4%
Charter 26,325,000 380,000 1.5%
AT&T 15,575,000 (123,000) -0.8%
Verizon 6,961,000 (7,000) -0.1%
Cox 5,145,000 25,000 0.5%
CenturyLink 4,714,000 (36,000) -0.8%
Altice 4,180,300 14,900 0.4%
Frontier 3,555,000 (71,000) -2.0%
Mediacom 1,316,000 13,000 1.0%
Windstream 1,040,000 5,700 0.6%
Consolidated 784,151 1,143 0.1%
WOW 773,900 10,420 1.3%
Cable ONE 689,138 7,376 1.1%
Atlantic Broadband 446,137 2,441 0.6%
TDS 437,700 4,300 1.0%
Cincinnati Bell 425,100 (400) -0.1%
100,553,426 605,660 0.6%

Leichtman says this group of companies represents 96% of all US broadband customers. I’m not sure how they calculated that percentage. That implies that there are only about 4 million broadband customers for companies not on this list, and that feels a little low to me.

For the quarter, these companies collectively saw growth that annualizes to 2.4%. This is a significant uptick over the second quarter of 2019 that saw an annualized growth rate of 1.7%.

On an annualized basis the third quarter of 2019 added about the same number of customers that were added for the calendar year of 2018. However, the cable companies are performing better this year while the losses continue to accelerate for the big telcos. The big telco losers for the quarter are Frontier, which lost 2% of its customer base, and AT&T and CenturyLink which each lost 0.8% of their customer base. Following are the annualized changes in customers in 2018 and 2019:

‘                                          2018                2019

Cable Companies        2,987,721        3,317,904

Telcos                            ( 472,124)        ( 895,564)

Total                              2,425,597        2,422,640

Both Comcast and Charter had spectacular quarters and continue to account for most of the growth in broadband, as each company added around 380,000 customers for the quarter. It would be interesting to understand what is driving that growth. Some of that comes from providing broadband to new homes. Some comes from customers converting away from DSL. And some comes from expansion – I know of examples where both companies are building new network around the fringes of their service areas.

Shame on the Regulators

It’s clear that even before the turn of this century that the big telcos largely walked away from maintaining and improving residential service. The evidence for this is the huge numbers of neighborhoods that are stuck with older copper technologies that haven’t been upgraded.  The telcos made huge profits over the decades in these neighborhoods and ideally should not have been allowed to walk away from their customers.

In the Cities. Many neighborhoods in urban areas still have first or second-generation DSL over copper with fastest speeds of 3 Mbps or 6 Mbps. That technology had a shelf-life of perhaps seven years and is now at least fifteen years old.

The companies that deployed the most DSL are AT&T and CenturyLink (formerly Quest). The DSL technology should have been upgraded over time by plowing profits back into the networks. This happened in some neighborhoods, but as has been shown in several detailed studies in cities like Cleveland and Dallas, the faster DSL was brought to more affluent neighborhoods, leaving poorer neighborhoods, even today, with the oldest DSL technology.

The neighborhoods that saw upgrades saw DSL speeds between 15 Mbps and 25 Mbps. Many of these neighborhoods eventually saw speeds as fast as 50 Mbps using a technology that bonded two 25 Mbps DSLs circuits. There are numerous examples of neighborhoods with 50 Mbps DSL sitting next to ones with 3 Mbps DSL.

Verizon used a different tactic and upgraded neighborhoods to FiOS fiber. But this was also done selectively although Verizon doesn’t seem to have redlined as much as AT&T, but instead built FiOS only where the construction cost was the lowest.

In Europe, the telcos decided to complete with the cable companies and have upgraded DSL over time, with the fastest DSL today offering speeds as fast as 300 Mbps. There is talk coming out of DSL vendors talking about ways to goose DSL up to gigabit speeds (but only for short distances). The telcos here basically stopped looking at better DSL technology after the introduction of VDSL2 at least fifteen years ago.

By now the telcos should have been using profits to build fiber. AT&T has done this using the strategy of building little pockets of fiber in every community near to existing fiber splice points. However, the vast majority of rural households served by AT&T are not being offered fiber, and AT&T said recently that they have no plans to build more fiber. CenturyLink built fiber to past nearly 1 million homes a few years ago, but that also seems like a dead venture going forward. But now, in 2019, each of these telcos should have been deep into urban neighborhoods in their whole service area with fiber. Had they done so they would not be getting clobbered so badly by the cable companies that are taking away millions of DSL customers every year.

Rural America. The big telcos started abandoning rural America as much as thirty years ago. They’ve stopped maintaining copper and have not voluntarily made any investments in rural America for a long time. There was a burst of rural construction recently when the FCC gave them $11 billion to improve rural broadband to 10/1 Mbps – but that doesn’t seem to be drawing many rural subscribers.

It’s always been a massive challenge to bring the same speeds to rural America that can be provided in urban America. This is particularly so with DSL since the speeds drop drastically with distance. DSL upgrades that could benefit urban neighborhoods don’t work well in farmland. But the telcos should have been expanding fiber deeper into the network over time to shorten loop lengths. Many independent telephone companies did this the right way and they were able over time to goose rural DSL speeds up to 25 Mbps.

The big telcos should have been engaging in a long-term plan to continually shorten rural copper loop lengths. That meant building fiber, and while shortening loop lengths they should have served households close to fiber routes with fiber. By now all of the small towns in rural America should have gotten fiber.

This is what regulated telcos are supposed to do. The big telcos made vast fortunes in serving residential customers for many decades. Regulated entities are supposed to roll profits back into improving the networks as technology improves – that’s the whole point of regulating the carrier of last resort.

Unfortunately, the industry got sidetracked by competition from CLECS. This competition first manifested in competition for large business customers. The big telcos used that competition to convince regulators they should be deregulated. Over time the cable companies provided real residential competition in cities, which led to the de facto total deregulation of telcos.

In Europe, the telcos never stopped competing in cities because regulators didn’t let them quit. The telcos have upgraded to copper speeds that customers still find attractive, but the telcos all admit that the next upgrade needs to be fiber. In the US, the big telcos exerted political pressure to gain deregulation at the first hint of competition. US telcos folded and walked away from their customers rather than fighting to maintain revenues.

Rural America should never have been deregulated. Shame on every regulator in every state that voted to deregulate the big telcos in rural America. Shame on every regulator that allowed companies like Verizon palm off their rural copper to companies like Frontier – a company that cannot succeed, almost by definition.

In rural America the telcos have a physical network monopoly and the regulators should have found ways to support rural copper rather than letting the telcos walk away from it. We know this can be done by looking at the different approaches taken by the smaller independent telephone companies. These small companies took care of their copper and most have now taken the next step to upgrade to fiber to be ready for the next century.

Cord Cutting Picking Up Steam

Cord cutting continued to pick up speed in the second quarter of this year. The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors.

The numbers reported are for the largest cable providers and Leichtman estimates that these companies represent 93% of all cable customers in the country.

The overall penetration rate of households buying traditional cable has dropped to 67.4% at the end of the second quarter of the year. The penetration rate had dropped just under 70% at the end of 2018.

For the quarter the cable companies lost 1.7% of subscribers which would equate to a trend of losing 6.7% for the year. However, that number needs to be put into context. The biggest drop of customers came from AT&T / DirectTV which lost over 1.3 million customers so far this year. The company decided to end discount plans to customers and has been letting customers go who won’t agree to pay full price after the end of discount plans. The company says they are glad to be rid of customers who are not contributing to the bottom line of the company. At some point soon that purge should end, and the company should return to a more normal trajectory. Normalizing for AT&T, the whole industry is probably still losing customer currently at a rate between 4% and 5% of total market share annually.

4Q 2018 2Q 2019 1Q Change 2Q Change 2Q
Comcast 21,986,000 21,641,000 (121,000) (224,000) -1.0%
AT&T / DirecTV 22,926,000 21,605,000 (543,000) (778,000) -3.5%
Charter 16,606,000 16,320,000 (145,000) (141,000) -0.9%
Dish TV 9,905,000 9,560,000 (266,000) (79,000) -0.8%
Verizon 4,451,000 4,346,000 (53,000) (52,000) -1.2%
Cox 4,015,000 3,940,000 (35,000) (40,000) -1.0%
Altice 3,307,500 3,276,500 (10,200) (20,800) -0.6%
Mediacom 776,000 747,000 (12,000) (17,000) -2.2%
Frontier 838,000 738,000 (54,000) (46,000) -5.9%
Cable ONE 326,423 308,493 (5,812) (12,118) -3.8%
Total 85,136,923 82,481,993 (1,245,012) (1,409,918) -1.7%

These same companies have lost over 5 million traditional cable subscribers since the end of the second quarter in 2018.

Some other observations:

  • This is the first time that Comcast has lost 1% of cable customers in a quarter. Until recently the company was holding steady with cable customer counts due to the fact that the company has continued to add new broadband customers, many who bought cable TV.
  • Frontier is bleeding both cable customers and broadband customers, and the company lost 71,000 broadband customers in the second quarter to go with the loss of 46,000 cable customers.
  • The only other companies that lost more than 2% of their cable customer base in the quarter are Mediacom and Cable ONE.
  • The loss of 79,000 customers is the smallest quarterly loss for Dish Networks since 2014.

The biggest losers in the industry are likely the programmers. They are losing millions of monthly subscriptions that were paying for their programming. A few networks are recovering some of these losses by selling programming to providers like SlingTV or PlayStation Now – but overall the programmers are losing a mountain of paying households.

The big question for the industry is if there is some predictable path for cord cutting. Will it continue to accelerate and kill the industry in a few years or will losses be slow and steady like happened with landline telephones?

Cord Cutting Picking Up Pace

Leichtman Research Group has published the cable TV customer counts for the first quarter of 2019 and it’s apparent that the rate of cord cutting is accelerating. These large companies represent roughly 95% of the traditional cable market.

1Q 2019 2,018
Customers Change % Change Losses
DirecTV / AT&T 22,383,000 (543,000) -2.4% (1,189,000)
Comcast 21,866,000 (120,000) -0.5% (371,000)
Charter 16,431,000 (145,000) -0.9% (244,000)
Dish TV 9,639,000 (266,000) -2.7% (1,125,000)
Verizon 4,398,000 (53,000) -1.2% (168,000)
Cox 3,980,000 (35,000) -0.9% (115,000)
Altice 3,297,300 (10,200) -0.3% (98,000)
Frontier 784,000 (54,000) -6.4% (123,000)
Mediacom 764,000 (12,000) -1.5% (45,000)
Cable One 320,611 (11,500) -3.5% (37,465)
83,862,911 (1,249,700) -1.5% (3,515,465)

A few things strike me about this table. First, the annual rate of loss is now 6%. That’s faster than we ever saw for telephone landlines which lost 5% annually at the peak of the market losses. We are only into the third real year of cord cutting and already the rate of customer growth has leaped to a 6% annual loss.

The other big striking number is that the overall traditional cable penetration rate has now dropped to 70%. According to the Census, there are 127.59 million households and adding in the customers of smaller providers shows a 70% market penetration. That’s still a lot of homes with traditional cable TV, but obviously the conversation about cutting the cord is happening in huge numbers of homes.

Another interesting observation is that AT&T is now at the top of the list. They’ve stopped reporting customers separately for DirecTV and for AT&T U-verse, which combined makes them the large cable provider in the country. However, at the rate the company is bleeding traditional cable customers, Comcast is likely to be number one again by the end of this year. AT&T has been encouraging customers to shift to DirecTV Now, delivered only online. However, that service also lost 83,000 customers in the first quarter, so the overall AT&T losses are staggering, at an annual rate of loss of over 8%.

The big losers in total customers are still the satellite companies. As those companies have gotten more realistic about pricing they’ve seen customer flee. There have been numerous articles in the press in publications like Forbes wondering if Dish Networks is even a viable company after these kinds of losses. There is also recent speculation that AT&T might spin off DirecTV and perhaps even merge it with Dish Networks.

The biggest percentage loser is Frontier, losing 6.4% of their customers in just the first quarter. It’s been obvious that the wheels are coming off of Frontier and the company just sold off properties in western states last month in order to raise cash.

For the last few years, Comcast and Charter were still holding on to overall cable customers. This was mostly buoyed by new cable customers that came from big increases in broadband customers – these two companies have added the bulk of new nationwide broadband customers over the last two years. But even with continued broadband growth, these companies are now seeing cable counts drop, and it’s likely that their rate of cord cutting among customers they’ve had for many years is probably as high as the rest of the industry.

It’s still hard to predict the trajectory of cable TV. In just two years the industry as a whole has gone from minor customer losses to losing customers at a rate of 6% per year. I don’t see any analysts predicting where this will bottom out – will it level off or will losses continue to accelerate? In any event, any industry losing 6% of customers annually is in trouble. It’s not going to take many years of losses at this rate for the industry to become irrelevant.

Broadband Statistics 4Q 2018

The Leichtman Research Group has published the statistics of broadband subscribers for the largest ISPs for the year ending December 31, 2018. Following compares the end of 2018 to the end of 2017.

 4Q 2018 4Q 2017 Change
Comcast 27,222,000 25,869,000 1,353,000 5.2%
Charter 25,259,000 23,988,000 1,271,000 5.3%
AT&T 15,701,000 15,719,000 (18,000) -0.1%
Verizon 6,961,000 6,959,000  2,000 0.0%
CenturyLink 5,400,000 5,662,000 (262,000) -4.6%
Cox 5,060,000 4,960,000 100,000 2.0%
Altice 4,118,100 4,046,000 71,900 1.8%
Frontier 3,735,000 3,938,000 (203,000) -5.2%
Mediacom 1,260,000 1,209,000 55,000 4.5%
Windstream 1,015,000 1,006,600 8,400 0.8%
Consolidated 778,970 780,794 (1,824) -0.2%
WOW! 759,600 732,700 26,900 3.7%
Cable ONE 663,074 643,153 19,921 3.1%
Cincinnati Bell 311,000 308,700 2,300 0.7%
98,247,744 95,822,147 2,425,597 2.5%

The large ISPs in the table control over 95% of the broadband market in the country. Not included in these numbers are the broadband customers served by the smaller ISPs – the telcos, WISPs, fiber overbuilders and municipalities.

The biggest cable companies continue to dominate the broadband market and now have 64.3 million customers compared to 33.9 million customers for the big telcos. During 2018 the big cable companies collectively added 2.9 million customers while the big telcos collectively lost 472,000 customers.

What is perhaps most astounding is that Comcast and Charter added 2.6 million customers for the year while the total broadband market for the biggest ISPs grew by only 2.5 million. For years it’s been obvious that the big cable companies are approaching monopoly status in metropolitan areas and these statistics demonstrate how Comcast and Charter, in particular, have a stranglehold over competition in their markets.

CenturyLink and Frontier are continuing to bleed DSL customers. Together the two companies lost 465,000 broadband customers in 2018, up from a loss for the two of 343,000 in 2017.

It’s always hard to understand all of the market forces behind these changes. For example, all of the big cable companies are seeing at least some competition from fiber overbuilders in some of their markets. It would be interesting to know how many customers each is losing to fiber competition.

I’d also love to know more about how the big companies are faring in different markets. I suspect that the trends for urban areas are significantly different than in smaller markets. I know that deep data analysis of the FCC’s 477 data might tell that story. (hint, hint in case anybody out there wants to do that analysis!)

I’m also curious if the cable companies are seeing enough bottom-line improvement to justify the expensive upgrades to DOCSIS 3.1. Aside from Comcast and Charter I wonder how companies like Cox, Mediacom and Cable ONE justify the upgrade costs. While those companies are seeing modest growth in broadband customers, each is also losing cable customers, and I’d love to understand if the upgrades are cost-justified.

If there is any one takeaway from these statistics it’s that we still haven’t reached the top of the broadband market. I see articles from time to time that predict that younger households are going to bail on landline broadband in favor of cellular broadband. But seeing that over 2.4 million households added broadband in the last year seems to be telling a different story.