US telecom companies are navigating a rough patch in the residential broadband and pay-TV sectors. The combined toll of transitioning customers to next-generation IP video services and managing broadband losses as legacy Internet subscribers defect to cable alternatives means telcos are seeing a dangerous slide in subscriber numbers.
In the latest findings from Leichtman Research Group (here and here), the top US telecom operators lost residential broadband customers nearly across the board in 2016. The sole exception was Cincinnati Bell Inc. (NYSE: CBB), which gained 15,800 broadband subs on the year. Pay-TV results were also broadly negative, with AT&T Inc. (NYSE: T)'s U-verse losses wiping out its DirecTV gains, and Frontier Communications Corp. (NYSE: FTR) dropping 255,000 video customers in 12 months.
Only Verizon Communications Inc. (NYSE: VZ) managed to gain pay-TV customers among the telcos in 2016, but the addition of 59,000 new subs may be at the expense of higher revenues as consumers move away from the company's high-end TV product tiers and toward cheaper Custom TV packages. (See Verizon Uses Fios as Shiny Object in Q4.)
Cable companies didn't exit 2016 unscathed, but they did fare better than their telco brethren. In particular, cable operators racked up broadband subscriber gains as both AT&T and Verizon found themselves weighed down with legacy DSL infrastructure. Even as AT&T presses the gas pedal on fiber-to-the-home deployments, those new builds haven't been enough to counter DSL declines. In total, cable companies gained nearly 3.3 million subscribers in 2016, while telcos lost nearly 600,000.
The pay-TV story is more complex. Only Comcast Corp. (Nasdaq: CMCSA, CMCSK) among the cable companies managed to gain subscribers, a major feat as more consumers look toward over-the-top video options. Both Charter Communications Inc. and Altice lost significant numbers (187,000 and 111,000 respectively), but did so as their telecom competitors also struggled.
One big question lies in how Charter and Altice plan to reverse recent declines. AT&T and Verizon are experimenting with new OTT video services in addition to offering TV over their legacy platforms. That's a strategy that may ultimately woo more customers, but could also hurt the bottom line.
Charter, in contrast, says it's focused on converting all of its systems to all-digital video delivery and unifying pricing and packing across a footprint that now includes former Time Warner Cable and Bright House Networks subs. It's not a sexy strategy, but Charter clearly thinks it will pay higher dividends. In addition, Charter recently released a new video app that makes a significant portion of its content available on phones, Rokus and smart TVs over a managed IP connection. (See Charter Launches 5G Field Trials and New Charter Spectrum App Goes Live.)
Altice is also avoiding the siren song of OTT delivery for now. Although details are scarce, the company instead says it's working on a new TV gateway, or "home entertainment hub," that it expects to roll out in the second quarter. (See Altice USA Sticks to High-Fiber Diet.)
All told, both cable and telecom companies are facing significant uncertainty in the pay-TV business. The difference between the two is that where broadband is concerned, it's the cable companies who are strengthening their grip on the market.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading