Cable One could soon see some backlash from a portion of its customer base as the operator moves ahead with a plan to drop its low-end 100Mbit/s broadband tier and force-migrate those customers to a 200Mbit/s service for an additional $5 per month.

Cable One will drop the 100Mbit/s tier, which starts at $39 per month and comes with data allowance of 350 gigabytes (Cable One offers unlimited data for an extra $40 per month, but otherwise charges $10 for each bucket of 100 gigabytes of data, up to $50 per month, when customers exceed their monthly data plan), at the end of the first quarter, CEO Julie Laulis said Thursday on the company's Q4 2021 earnings call.

Laulis noted that nearly four out of five Cable One customers self-select speeds of 200 Mbit/s or more, with 1-Gig sell-in now at more than 14%. Cable One, she added, plans to reduce the price of its 1-Gig product, noting that modeling shows that the move will still result in ARPU growth. At last check, Cable One's 1-Gig product started at $125 per month.

Update: Laulis said 22% of Cable One's residential broadband base currently is on the 100 Mbit/s starter plan, which equates to about 191,400 subscribers based on the 957,000 that Cable One had at the end of 2021. At $5 a pop, the back-of-the-napkin math suggests that Cable One's forced migration will produce at least $957,000 in additional broadband revenues per month.

Cable One's decision to drop the 100-meg tier and establish 200 Mbit/s as the minimum speed effectively mirrors the minimum speed level that Charter Communications has set in recent years.

Laulis reasoned that the migration will ensure Cable One, now branded as Sparklight, delivers a broadband experience that lives up to the expectations of customers while still maintaining a solid value proposition.

But the decision will undoubtably boost Cable One's already-lofty average revenue per unit for residential broadband. The company ended 2021 with residential broadband ARPU of $79.32, up 4.9% year-over-year. That compares to $73.32 for Altice USA, $66.26 for Comcast and $64.45 for Charter, according to MoffettNathanson.

Limited broadband competition

Though Cable One might get some pushback from customers about the forced migration, the company doesn't face off against stiff broadband competition in the bulk of what are mostly rural markets.

The company estimates that, heading into 2022, less than 28% of Cable One's market competitors offer broadband download speeds of 100 Mbit/s. Cable One faces fiber competition in a small minority of its homes passed, a figure that could climb as telcos such as AT&T expand fiber-to-the-premises buildouts and introduce multi-gigabit services, and as more stimulus dollars flow in to support underserved and unserved areas.

Cable One has not seen much additional fiber competition of late even as fiber projects in rural areas start to ramp up. "We don't see a softening in our marketplace," Laulis said, noting that Cable One monitors competition "down to the node or neighborhood level."

Meanwhile, Laulis said Cable One is exploring broadband-related stimulus funding that's part of President Biden's broader infrastructure bill, and is keeping tabs on how that process will be structured at the stage level. "We imagine it will be both defensive and offensive in nature," she explained.

Financial snapshot

Cable One posted Q4 revenues of $432.6 million, up from $336.8 million a year ago. The Q4 2021 result included about $77.8 million from Cable One's acquisition of the Hargray operations. Business revenues rose 46.2% thanks to recent acquisitions, or up 8.3% on an organic basis.

Aided by M&A, Cable One added 22,000 broadband subs in Q4 2021, beating analyst expectations of nearly 12,000. Without the M&A, Cable One added about 9,000 broadband subs. Cable One's broadband penetration, at 38.7%, remains among the industry's lowest.

"While some still argue that Cable One may end up facing the largest increase in fiber overlaps – from almost nothing to something – we would argue that they are still likely to face the least absolute overlap with fiber-based competition, hence their growth runway is arguably the industry’s longest," Craig Moffett, analyst with MoffettNathanson, explained in a research note (registration required).

Cable One, the first publicly traded operator to pursue a "broadband first" strategy that deemphasized pay-TV, lost another 21,000 video subs in the quarter, worse than the -11,000 expected by analysts.

Cable One, which ended the year with video penetration of just 22.6%, has launched an IPTV service (with TiVo, after TiVo acquired the assets of MobiTV) called Sparklight TV, and has been expanding availability to multiple markets in Arizona, Idaho, Mississippi, Nebraska, New Mexico, Oklahoma, Tennessee and Texas. Thus far, the company has yet to follow some of its peers by co-marketing services from YouTube TV, Philo and other virtual multichannel video programming distributors (vMVPD).

Cable One is expected to discuss its going-forward strategy in more detail at an investor day slated for March 3.

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— Jeff Baumgartner, Senior Editor, Light Reading