US cable could nearly double its base of mobile lines when the industry reaches 'equilibrium,' a state in which gross adds are equal to the number of subs being lost to churn, according to a new MoffettNathanson analysis.
Led by Charter Communications and Comcast, the US cable market has put a dent in the mobile market. That dent is expected to grow in size as Altice USA and Cox Communications get more aggressive with mobile and as a mix of small and midsized operators, such as Mediacom Communications and Breezeline, make mobile a more prominent piece of their bundles.
Charter (8.8 million mobile lines), Comcast (7.19 million mobile lines) and Altice USA (385,000 mobile lines) ended Q2 with a combined 17.08 million mobile lines. The number is of course higher when accounting for the cable ops with mobile offerings that don't report those numbers.
Though US cable's share in mobile is rising, it still represents a sliver of the total pie. MoffettNathanson estimates that cable controls just 6.3% of post-paid US mobile subscriptions and 4.9% of total mobile subscriptions (post-paid and pre-paid).
Execs at Charter and Comcast insist there's much more growth ahead as they further penetrate their broadband subscriber base with mobile with relatively lower-priced offerings that aim to undercut those from AT&T, T-Mobile and Verizon. But it's not clear just how much runway they have.
A new analysis from MoffettNathanson takes an informed stab at how large US cable's mobile business might become.
Reaching 'equilibrium'
MoffettNathanson suggests that US cable operators are poised – in the coming years – to nearly double their mobile lines as they reach a state of "equilibrium" in which the number of mobile customers being gained (gross additions) is equal to the number of customers being lost (churn). MoffettNathanson analyst Craig Moffett noted that he used this general equilibrium model in 2005 for the US satellite TV market, finding that it was on a market share trajectory that was lower than what was reflected in consensus estimates at the time.
MoffettNathanson's new analysis of that theory (registration required) – which assumes a cable postpaid churn of 1.25% and postpaid phone gross adds of 17% – sees cable's equilibrium mobile market share at 12.2%. That figure, the report notes, is somewhat in-line with the MVNO share in other markets around the globe, including the UK (17%), Ireland (13%), Japan (11%) and Germany (20%).
In the US, MVNO market share is currently less than 5%, but cable's mobile strategy is threatening to "make the US look a lot more like Europe," MoffettNathanson analyst Craig Moffett suggested.
With cable's current postpaid share currently hovering at just 6.3% in a US mobile industry that boasted 262.1 million postpaid mobile phone subs at the end of Q2, cable's increased market share would amount to an incremental 15.6 million lines, the analysis found. When combined with US cable's current take of 17.08 million lines, that equilibrium state would be in the neighborhood of 32.68 million mobile lines.
That's "a near doubling of their existing base, assuming no growth at the industry level," Moffett noted in the report. "Our equilibrium analysis suggests that Cable's eventual market share, and therefore the size of Cable's business, is likely quite a bit larger than broadly expected."
The timeframe for cable to reach mobile equilibrium is not defined. However, MoffettNathanson suggests it could take about five years for cable's post-paid mobile share to reach 9.4%, ten years to reach 10.9%, and "increasing very gradually" to 12.2% over the following 15 to 20 years.
And there are caveats. "Again, this is in a closed system, where there's no industry growth, and gross adds equal churned subscribers," Moffett explained.
Using today's post-paid subscriber growth of 3.4%, which Moffett thinks is unsustainable, cable's predicted 15.6 million incremental mobile lines (at 12.2% market share) would rise to 28.2 million when compounded over ten years.
Moffett also issued his latest mobile forecasts for select individual US cable operators. He sees Comcast's mobile lines growing from 7.8 million at the end of 2024 to 12.25 million by the end of 2028. He forecasts that Charter's mobile lines will reach 9.81 million by the end of 2024 and rise to 16.4 million by the end of 2028.
Cable not an ordinary MVNO
Moffett remains bullish on cable's move into mobile and its broader wireline/wireless convergence strategy, and believes cable's current success in the mobile market "is largely dismissed by investors." For now, much more attention is being directed on the fact that US cable has been losing home broadband subscribers as the industry grapples with more fiber competition and the recent success of fixed wireless access (FWA) rivals.
But the analyst maintains that cable is not an ordinary MVNO, holding that cable's ability to offload traffic onto their own networks gives it a distinct advantage. Most of that offload, which cuts down MVNO costs and makes mobile more profitable for cable, is on Wi-Fi. Operators such as Comcast and Charter are starting to use CBRS spectrum to offload mobile traffic in concentrated, high-use areas, but progress there has been slow. And based on this week's comments from Charter President and CEO Chris Winfrey it will remain that way for at least the near term.
"Traffic offload, initially onto Wi-Fi but eventually onto licensed and unlicensed CBRS spectrum, allows Cable to compete on the basis of price and still generate very high margins and what we believe are exceptionally high returns on capital," Moffett wrote.
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