Cable's Q2 broadband tally might buck seasonal trends – analyst

The second quarter of the year is usually a tough stretch for cable operators. They typically see weak subscriber results because of "seasonality" – from students and snowbirds who shut off cable services as they return home for the summer.

Cable broadband numbers in Q2 2023 aren't expected to be strong, but they may not be as weak as in recent years – at least for Comcast and Charter Communications, according to the latest expectations for the quarter from New Street Research.

Comcast and Charter normally see a decline in broadband subscriber net adds of about 200,000 from the first quarter to the second quarter of the year. And before the pandemic, they would typically see a drop from around 400,000 to 200,000, New Street's Jonathan Chaplin explained in a research note sent to clients over the weekend.

If "normal seasonality" holds, Charter would be expected to lose about 120,000 subs in Q2 2023 versus Q1 results, with Comcast losing about 190,000. However, the current consensus of Wall Street analysts expects Charter to add 16,000 broadband subs, with Comcast losing around 76,000.

"We don't think the improvement implied by consensus estimates is priced into Cable stocks at present," Chaplin explained. "We hope consensus is right, but it is important to recognize that, if it is, it would mark a departure from the status quo."

Market share drivers

But if Charter and Comcast see improvements in market share trends, Chaplin believes different drivers are leading the way for each operator.

For Charter, its new buildouts in rural areas could be on the rise – from about 17,000 subscribers in Q1 2023 to 24,000 in Q2. Chaplin expects that trend to accelerate to 41,000 subs in Q4 2023 and about 50,000 per quarter in 2024. Meanwhile, in Charter's "core" markets, the operator could see greater benefits from Spectrum One, its wired/mobile promotional package.

At Comcast, New Street's Chaplin wonders if the company is seeing momentum from a $25 per month lower-end offer aimed at fixed wireless access (FWA) competition, along with some pull-through effect from Comcast's relatively new convergence packages that share similarities with Charter's Spectrum One.

In the bigger picture, Chaplin expects some factors to drive sustained improvements in US cable subscriber growth – slowing fixed wireless access (FWA) sub growth and improving competitive positioning fueled by network expansions, convergence bundles and new tiers that size up against FWA speeds and pricing.

He expects that T-Mobile's FWA additions "likely peaked" in the third quarter of 2022, and Verizon's peak is still to be reached as it expands its markets later this year using C-band licenses.

"We estimate that T-Mobile is capturing ~30% of broadband decisions in markets where they offer FWB [fixed wireless broadband]. This is a phenomenal achievement – we don't think they can improve on it," Chaplin wrote. "If Cable meets consensus expectations, it will likely come from an improvement in market share trends."

Chaplin suspects that FWA subscriber growth could run its course in the coming years as capacity is used up, opening a window for cable to nab market share.

The counterargument, by other industry observers, is that FWA networks can stay ahead of consumption constraints by densifying their networks and pulling fiber deeper, sharing similarities to how cable operators have been staying ahead over the years by splitting nodes.

And if Wall Street's consensus estimate doesn't hold in Q2 2023, cable broadband trends "will certainly be evident" in the second half of 2023, New Street's Chaplin predicted, hinting at more growth ahead.

Not all analysts are as bullish about cable's future broadband subscriber growth prospects. In a report issued last week, analyst firm MoffettNathanson said it believes that cable operators will be able to grow average revenue per user (ARPU) for broadband, but expects industry broadband subscriber growth to be "minimal going forward."

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— Jeff Baumgartner, Senior Editor, Light Reading