Cable One broadband sub growth hits a wall in Q2, but ARPU soars

Cable One, one of the first cable operators to take on a "broadband-first" footing while being indifferent to steepening pay-TV losses, shed about 6,000 broadband customers in the typically weak second quarter of 2023. But the operator saw average revenue per user (ARPU) for broadband jump 5.9% year-over-year, reaching an industry high of $85.20.

That scenario reflects a broader trend across the US cable industry. As cable operators have struggled to grow broadband subscribers amid a slow housing market and increased competition, some of them, notably Comcast, now view ARPU growth, rather than raw subscriber growth, as the key metric of the all-important broadband business.

If ARPU is indeed the new story for cable broadband, it would seem Cable One has a good one to tell – its ARPU remains heads and shoulders above other publicly traded US cable operators.

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As MoffettNathanson analyst Craig Moffett points out, Cable One's broadband ARPU benefits from the operator's super-low video attachment rate, meaning that fewer of its customers buy broadband at a lower, bundled rate. And, unlike many of its cable peers, Cable One currently does not offer a home broadband/mobile bundle and, at least for now, has shown no interest in adding mobile to the bundle.

"Still, their broadband ARPU is extraordinarily high," Moffett explained, noting that some investors can point to the struggles of Altice USA to understand what happens when broadband ARPU gets too high relative to competitors.

Cable One's surging ARPU is due to a mix of reasons. They include the operator's aforementioned low video attach rate, customers gravitating to faster, more expensive speed tiers, recent rate adjustments and higher cable modem rental fees. Notably, new Cable One broadband customers are also taking higher-level speed tiers, with 1-Gig speed sales reaching an all-time high of nearly 40% in the quarter.

"The spotlight shines so brightly on broadband ARPU because, like all cable operators, their broadband unit growth has slowed to a crawl," Moffett said of Cable One's situation. "The broadband market is now relatively saturated, leaving market growth dependent on new household formation and not much else. With competition from fiber overbuilds and FWA [fixed wireless access] more or less offsetting share gains versus DSL, the net result is... more or less nothing."

Speaking on last week's earnings call, Cable One CEO Julie Laulis said the Q2 broadband subscriber loss was "highly correlated to seasonality" – a label the cable industry often uses to characterize a second quarter that tends to see retirees and students switch off service as they return to their summer locations.

Cable One didn't provide specific guidance for Q3, "but if trends follow, it should be a good quarter," Laulis said.

Getting more out of DOCSIS 3.1

Cable One didn't give an update on its plans to upgrade its hybrid fiber/coax (HFC) network to DOCSIS 4.0, but it did note that it has figured out a new way to squeeze more capacity out of its existing DOCSIS 3.1 network.

Laulis said Cable One engineers have "developed a unique device configuring using DOCSIS 3.1" that has generated 20% to 30% more capacity in the upstream than what has been available on traditional "low-split" HFC networks. Today's low-split HFC networks limit upstream spectrum to a range of 5MHz-42MHz. New "mid-split" or "high-split" upgrades being employed by some cable operators expand the upstream spectrum range to 5MHz-85MHz or 5MHz-204MHz.

"We are not aware of anyone in the industry currently optimizing upstream capacity in this way," Laulis added, noting that it's another way Cable One can extend the life of its existing HFC plant with limited capital investments.

Cable One's been asked for more detail on how it is adding upstream capacity with its current low-split network. It's possible that the operator is using a variation of a Profile Management Application (PMA) that enables modems to dynamically tap into the best modulation for every frequency/channel in the cable spectrum and deliver the maximum number of bits per hertz.

With broadband and commercial services as Cable One's primary focus, its video business continued to deteriorate. Cable One lost another 8,900 video subs in Q2, dropping its video penetration rate to a mere 5.8%.

Financial snapshot

Cable One posted Q2 revenues of $424.02 million, down 1.2% year-over-year, and net income came in at $55.2 million, down from $69.2 million in the year-ago quarter.

Data revenues rose 5.8%, to $246.84 million, and video revenues dropped 22%, to $66.13 million.

Business services, considered one of Cable One's key growth drivers, came in at $76.81 million, up only 0.2%.

Cable One CFO Todd Koetje noted on the call that the company invested another $13.9 million in Ziply Fiber, raising its total investment to more than $36 million. Cable One also redeemed nearly $36 million from its equity investment in Wisper, a fixed wireless ISP, Koetje said.

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— Jeff Baumgartner, Senior Editor, Light Reading