May 10, 2019
Cable One's strategy to focus on broadband and de-emphasize pay-TV continued to play out in Q1 2019, as the operator saw its average revenue per unit (ARPU) reach an industry high among its US peers.
A residential broadband ARPU of $70.80 in Q1 made Cable One the first publicly traded US cable operator to eclipse the $70 mark, according to Craig Moffett, an analyst with MoffettNathanson.
Cable One has achieved that, in part, due to service rates; it has gotten quite a bit of traction with a new unlimited data plan and the migration of new and existing broadband customers to more expensive, higher-speed tiers.
About 10% of Cable One's new broadband customers take the MSO's unlimited data plan, which costs an extra $40 per month on top of the baseline rate, Julie Laulis, Cable One's president and CEO, said on the company's Q1 earnings call Thursday. In the period, roughly 50% of new customers also selected plans that deliver 200 Mbit/s or more.
Those results come after Cable One introduced a new batch of more flexible pricing and packaging plans for residential broadband in January. In addition to the unlimited plan, Cable One also charges $10 for a bucket of 100GB of data when customers exceed their data plans. For example, Cable One has set a 300GB monthly limit on its flagship 100Mbit/s tier, 600GB for its 200Mbit/s plan and 900GB for its 300Mbit/s service.
"We will continue to monitor new sales and existing customer migrations, but we like the results to date," she said, adding later that Cable One's churn rate has likewise reached "historical low levels."
Average data usage among Cable One subs is also running a bit ahead of some of the nation's largest operators. Laulis said average data usage at the end of Q1 was 290 gigabytes per month, representing a growth rate of 30% to 35%.
Charter Communications and Comcast have seen monthly data usage averages of about 200GB, though Charter has seen that climb to about 400GB per month among broadband subs that don't take a pay-TV package from the operator. Starry, a 5G-based fixed wireless broadband service, said at this week's Big 5G Event in Denver that it has seen an average of 350 GB per month, with the important distinction that the vast majority of its customers are cord-cutters that rely on OTT for live TV and other types of video services.
By Moffett's count, residential broadband now accounts for 46.6% of Cable One's total revenues, which clocked in at $278.6 million, up 4.8% from $265.8 million in the year-ago quarter.
In Q1, Cable One added 10,700 residential broadband subs, beating expected additions of 6,000, and better than the 7,200 adds in the year-ago period.
Laulis attributed the improved broadband service penetration to a confluence of factors, including the new packaging and a fresh marketing and ad campaign, as the previous one had "grown stale." Cable One is also in the process of rebranding itself as "Sparklight."
Cable One SVP and CFO Steven Cochran added that Cable One has likewise been successful at stealing subs from DSL providers that aren't stacking up from a performance and value standpoint. "The DSL we compete against in a number of our markets just isn't nearly as relevant," he said.
Looking at low latency
Laulis said Cable One is also keeping an eye on possible new revenue-driving services, such as low-latency options that can be sold to avid online gamers as an add-on premium -- an approach that Cox Communications is testing with its new Cox Elite Gamer service.
"Low latency is certainly something the team here discusses," Laulis said. "We do see it as a … next frontier now that speed [as a differentiator] has certainly been won by operators like us and others."
Cable One's laser focus on broadband also means more losses on the pay-TV side. The operator shed another 13,000 video subs in Q1, more than the expected loss of 10,900.
Moffett, meanwhile, says he still believes in Cable One's general strategy to emphasize broadband. But he is still skeptical about whether that angle, which has produced industry-leading margins and established Cable One as a prime example of a "post-video cable business," should translate to Cable One's lofty valuation.
"With all operators moving in the direction of more broadband and less video, all will eventually warrant higher multiples," he wrote in a research note. "Wouldn't one prefer to buy an operator growing into that multiple instead of one already there? And that, in a nutshell, is Cable One's problem."
With Cable One's stock trading at roughly $1,100 per share, and a 13.6x forward EBITDA multiple, Moffett said he still struggles to make the case that Cable One is as attractive as its cheaper MSO peers.
Cable One shares were down $23.52 (2.14%) to $1,076.25 in mid-day trading Friday.
Starry Subs Devour 350GB of Data Per Month, Gravitate to OTT Video Cox tests premium low-lag gaming service 'Cable' heading toward extinction? Cable One Bulks Up With $525.9M Fidelity Buy Cable One Gets Credit for Putting Pipes Ahead of Programming Cable One to Rebrand as 'Sparklight' — Jeff Baumgartner, Senior Editor, Light Reading
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