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Cable Broadband Surpassing Video: Moody's

Alan Breznick

In a potentially game-changing shift for the cable industry, US MSOs will soon have more broadband subscribers than video subscribers for the first time in the industry's 65-year history.

In a new report issued last week, Moody's Investors Service predicts that US cable operators will amass more high-speed data customers than pay TV customers by next year, as they keep gaining more broadband users and shedding video viewers. In fact, the debt-rating agency calculates that the crossover point is already occurring, with both services now boasting about 50 million subscribers.

Several major US MSOs already have more broadband customers than video customers, or are closing in on the crossover point. Both Time Warner Cable Inc. (NYSE: TWC) and Charter Communications Inc. -- the second- and fourth-largest US MSOs, respectively -- now have more broadband than video customers, while Cablevision Systems Corp. (NYSE: CVC) may well have reached the crossover point at the end of the second quarter. (See Cable Leaves Telcos in Broadband Dust.)

Broadband replacing video as the anchor product for the industry could have both positive and negative effects for cable companies, according to Moody's. On the positive side, the rating agency notes, fewer video customers will lower cable operators' programming costs, which have been sharply rising for years. In turn, operators' profit margins should improve, because high-speed data is a higher-margin product than TV.

On the other hand, the Moody's report points out, "an eroding subscriber base for video also poses risks" for cable providers. That's because their economies of scale may suffer for such areas as technical and customer service, driving up costs per customer. In addition, cable operators that seem to be giving up their video base easily may see their brands suffer, as well.

Given these factors, the report suggests that it may make sense for some cable providers to unbundle their broadband and video offerings, and put greater emphasis on broadband, especially in less-competitive markets. The report stresses that such small and midsized cable operators and overbuilders as RCN Corp. , Grande Communications , and Wave Broadband have all built "sustainable" businesses with relatively low video penetration rates but much higher broadband adoption rates.

However, Moody's contends that cable operators in more competitive markets will likely need to maintain strong video offerings because of the danger of losing double-play and triple-play subscribers to telcos. In particular, the agency warns that such MSOs as TW Cable, Cablevision, and Cox Communications Inc. could struggle because their regions have significant overlap with the fiber buildouts of Verizon Communications Inc. (NYSE: VZ)'s FiOS and AT&T Inc. (NYSE: T)'s U-verse networks.

If you want to keep up with all the latest developments on the cable/telco broadband wars, keep your eyes glued to Light Reading's cable modem/CMTS channel.

"Cable providers' largely upgraded networks and high-speed capabilities can make them the first call for consumers seeking fast Internet connections," said Karen Berckmann, vice president and senior analyst for Moody's. "But if cable companies want to sell their video product as well, the onus is on them to provide a compelling video experience at an attractive price."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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User Rank: Light Sabre
7/29/2014 | 8:57:28 AM
Re: Caps?
Putting in restrictions on broadband use to preserve video revenues would be a bad move. Cable operators clearly understand their future is in providing broadband service. That's the asset that needs cultivating. Video services aren't going away, but they aren't the growth part of the business.
User Rank: Light Sabre
7/28/2014 | 6:20:29 PM
"On the other hand, the Moody's report points out, "an eroding subscriber base for video also poses risks" for cable providers."


It makes one wonder if 2015 won't see a greater push toward usage caps as companies try to counter the potential lost TV revenues as broadband increasingly becomes more important?
User Rank: Light Sabre
7/28/2014 | 3:24:38 PM
Re: Let's not forget customer support/experience
Quality of customer care would definitely be an issue if there were a discernible difference among providers. In general, that's not the case with telecom or video services. A happy customer tends to be one who hasn't had to deal with customer service for a while.
User Rank: Blogger
7/28/2014 | 12:27:00 PM
Let's not forget customer support/experience
In terms of the triple play/broadband battle in general.... 

I think it's key to remember that the quality of customer support and service also comes into play -- it can be just as important a criterion whne deciding to stay/leave/join a service provider as broadband speed, TV channel choice etc

For example, there are some people, I'm sure, who will certainly think twice about signing up with Comcast after the recent high-profile customer service meltdown that went viral on social media....

What Can We Learn From Comcast's Customer Service Nightmare?



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