Cable Tech

Market is undervaluing US cable – analyst

Cable stocks have been punished so far in 2022 amid a slowdown of broadband subscriber growth and fears that rising pressure from fiber and fixed wireless access (FWA) competition could spark a price war that sends average revenues per user (ARPU) tumbling.

"It has been a brutal year for Cable investors," MoffettNathanson concludes in a new report (registration required) holding that the market has overreacted to US cable's growth prospects.

Yet Wall Street's bearish view on the industry can't be ignored. The report points out that, year-to-date, Charter Communications shares are down 52%, Comcast's are down 41%, Altice USA has dropped a "heart-stopping" 66% and Cable One's are down 53%. And they've all underperformed the S&P 500:

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That downturn has entered the picture as cable broadband subscriber growth has either slowed or gone negative paired with concerns that a broadband price war is on the horizon as MSOs grapple with new competition. While those factors can't be discounted, MoffettNathanson also views the broader market's rising cost of capital as yet another "more pedestrian culprit" that's at work here.

"This change in the cost of capital accounts for much of the decline in Cable stocks," MoffettNathanson analyst Craig Moffett explained. "Like the broader market, and the tech sector in particular, higher interest rates have wreaked havoc on cable stocks."

Little focus on cable's wireless prospects

But the analyst believes the degree of the market's bearish view on US cable is "much too punitive." The debate about terminal growth rates, he adds, is "almost exclusively centered on broadband," a service category that accounts for only a little more than half of cable revenues.

Moffett also reasons that that there's been "little if any focus on Cable's wireless business in all of this."

But he still expects cable's broadband business to generate positive growth, augmented by solid performance in both wireless and commercial services, and "only partially offset by continued declines in video."

The market, he believes "is undervaluing Cable's growth prospects (particularly wireless, but broadband as well)."

Cable broadband sub growth won't 'turn meaningfully negative'

Moffett doesn't expect cable broadband net adds to "turn meaningfully negative," but did cut his subscriber forecast due in part to slower new household formation.

For 2022, he now expects Comcast to add 337,000 broadband subs, down from a prior forecast of +352,000. Charter is now expected to add 279,000 broadband customers, down from a prior forecast of +307,000. Moffett's 2022 broadband subscriber forecast for Cable One (+33,000) is unchanged. Moffett expects Altice USA to lose 54,000 broadband subs this year (widened from a prior forecast of -46,000), but sees the operator returning to broadband subscriber growth in 2023 (+24,000).

But he's not convinced that competition in fiber-overlapped areas will be subject to "intense" price competition, noting that competition tends to heat up in the first four years after a new fiber player enters the market and then subsides into a "stable duopoly equilibrium."

And while cable is known to compete aggressively in newly overbuilt fiber markets, Moffett doesn't expect that to spark a dramatic change across cable's national pricing strategy. He also doesn't expect the threat posed by FWA to draw a major pricing response from cable operators.

But that doesn't mean cable won't use promotions, particularly those that tie together home broadband and mobile services.

One recent example cited by Moffett is Charter's "SpectrumOne" promo for new customers. The baseline SpectrumOne promo pitches home broadband speeds of 300 Mbit/s (downstream), "advanced" home Wi-Fi (with a free modem tossed in) and an unlimited line of mobile for $49.99 per month (for 12 months). Pricing on the SpectrumOne promo rises to $69.99 per month when paired with home Internet speeds of 500 Mbit/s, and $109.98 per month with 300Mbit/s home Internet speeds and the bundling in of Charter's pay-TV service.

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— Jeff Baumgartner, Senior Editor, Light Reading

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