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Cablecos Gain From Era of Telco Transition

Mari Silbey
3/17/2017
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US telecom companies are navigating a rough patch in the residential broadband and pay-TV sectors. The combined toll of transitioning customers to next-generation IP video services and managing broadband losses as legacy Internet subscribers defect to cable alternatives means telcos are seeing a dangerous slide in subscriber numbers.

In the latest findings from Leichtman Research Group (here and here), the top US telecom operators lost residential broadband customers nearly across the board in 2016. The sole exception was Cincinnati Bell Inc. (NYSE: CBB), which gained 15,800 broadband subs on the year. Pay-TV results were also broadly negative, with AT&T Inc. (NYSE: T)'s U-verse losses wiping out its DirecTV gains, and Frontier Communications Corp. (NYSE: FTR) dropping 255,000 video customers in 12 months.

Only Verizon Communications Inc. (NYSE: VZ) managed to gain pay-TV customers among the telcos in 2016, but the addition of 59,000 new subs may be at the expense of higher revenues as consumers move away from the company's high-end TV product tiers and toward cheaper Custom TV packages. (See Verizon Uses Fios as Shiny Object in Q4.)

Cable companies didn't exit 2016 unscathed, but they did fare better than their telco brethren. In particular, cable operators racked up broadband subscriber gains as both AT&T and Verizon found themselves weighed down with legacy DSL infrastructure. Even as AT&T presses the gas pedal on fiber-to-the-home deployments, those new builds haven't been enough to counter DSL declines. In total, cable companies gained nearly 3.3 million subscribers in 2016, while telcos lost nearly 600,000.


Want to learn more about cable's broadband future? Sign up now for Light Reading's Cable Next-Gen Technologies & Strategies event on March 21-22, at the Curtis Hotel in downtown Denver.


The pay-TV story is more complex. Only Comcast Corp. (Nasdaq: CMCSA, CMCSK) among the cable companies managed to gain subscribers, a major feat as more consumers look toward over-the-top video options. Both Charter Communications Inc. and Altice lost significant numbers (187,000 and 111,000 respectively), but did so as their telecom competitors also struggled.

One big question lies in how Charter and Altice plan to reverse recent declines. AT&T and Verizon are experimenting with new OTT video services in addition to offering TV over their legacy platforms. That's a strategy that may ultimately woo more customers, but could also hurt the bottom line.

Charter, in contrast, says it's focused on converting all of its systems to all-digital video delivery and unifying pricing and packing across a footprint that now includes former Time Warner Cable and Bright House Networks subs. It's not a sexy strategy, but Charter clearly thinks it will pay higher dividends. In addition, Charter recently released a new video app that makes a significant portion of its content available on phones, Rokus and smart TVs over a managed IP connection. (See Charter Launches 5G Field Trials and New Charter Spectrum App Goes Live.)

Altice is also avoiding the siren song of OTT delivery for now. Although details are scarce, the company instead says it's working on a new TV gateway, or "home entertainment hub," that it expects to roll out in the second quarter. (See Altice USA Sticks to High-Fiber Diet.)

All told, both cable and telecom companies are facing significant uncertainty in the pay-TV business. The difference between the two is that where broadband is concerned, it's the cable companies who are strengthening their grip on the market.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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brooks7
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brooks7,
User Rank: Light Sabre
3/27/2017 | 4:52:54 PM
Re: "transition"
Kb,

I have stated it for a long time.  Not suggest.  In fact, this is the reason that I considered Net Neutrality the worst thing for the consumer of all time.  It fixed a problem that didn't exist, while taking all the political capital and throwing it away.  Is NN wonderful?  Yes - great...but Cogent admitted PUBLICALLY that they were the ones slowing down Netflix NOT Comcast.  So, as far as I can tell other than some IOCs screwing up years ago, nobody ever degraded performance.  And yet, we have an antiquated model for investing in Broadband Infrastructure.  So either we turn them all back to Rate of Return carriers (which I think is practically impossible), go through Structural Separation (slghtly less impossible) or Turn Residential Broadband with escalating service requirements (call it 25M today 100M in 2020 and 1Gbps in 2030 as an example).  CAF and all its variants replace CAPEX that was going to be spent with government money.  It does NOT go into places that were not going to have it done anyway.  Now, I will get complaints by the odd overbuilder or CLEC...but the truth is that the work they do covers such a small part of the US population that it does not matter.  Local to me Sonic has fewer FTTH subscribers than we used to install with Verizon via FiOS EVERY DAY.

seven

 
KBode
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KBode,
User Rank: Light Sabre
3/27/2017 | 12:04:33 PM
Re: "transition"
"There has not yet been a regulatory method to encourage the investment."

Are you daring to suggest that throwing billions at companies -- then failing utterly to track how this money was spent -- hasn't resulted in world-class telecom infrastructure? :)
brooks7
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brooks7,
User Rank: Light Sabre
3/27/2017 | 11:14:05 AM
Re: "transition"
Verizon and AT&T have taken different paths to minimize their investment in Residential Broadband.  Given that this is not a mandatory investment, it makes business sense.  There has not yet been a regulatory method to encourage the investment.  My take is (and has been for some time) that the only way is to make residential broadband a universal service and manage it as a utility.

seven

 
KBode
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KBode,
User Rank: Light Sabre
3/24/2017 | 3:38:35 PM
"transition"
I think "transistion" is a nice way to put it.

Another way to put it is AT&T and Verizon don't want to spend money to upgrade massive swaths of their DSL networks. And that many second tier telcos (CenturyLink, Windstream, Frontier) are only modestly upgrading highly selective parts of their network because they A. don't see real competition and B. took on so much debt gobbling up AT&T and Verizon's unwanted POTS users that they lack the funds to engage in FTTN/FTTH at any real scale.
danielcawrey
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danielcawrey,
User Rank: Light Sabre
3/21/2017 | 3:32:05 PM
Re: Losing subscribers
I think OTT offerings are going to have to be part of the equation here. 

Yes, I know this does result in a bit of cannibalizing exiting services. But what choice do these companies have? Sell an internet package with a great content bundle. That's probably a great way to get customers onboard without totally losing them. 
FbytF
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FbytF,
User Rank: Light Sabre
3/20/2017 | 4:38:14 PM
Losing subscribers
The question is how many lost subscribers are intentional?  It seems traditional telcos have little interest in wireline broadband customers and instead focus on wireless customers.  I live in a non FiOS Verizon territory and really only have one choice for Internet service, unfortunately its Comcast.  Verizon can only offer 1.5M DSL, seriously, who signs up for this.  So reluctantly every month I send those morons at Comcast $255 for TV and Internet. Where's the competition?  I could cut about $70 off my Comcast bill if I took their triple play offer but I need a reliable phone service. I know people who have FiOS and they have their complaints too but at least they have options.  My point is, Comcast is taking customers from VZ and AT&T in areas where they don't compete. In areas where they do compete it's probably a mixed bag split between Cableco and Telco's. All though I can't remember ever meeting anyone who loved Comcast service.
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