Credit Suisse Initiates Coverage of Cable, DBS

Picks Up Coverage of Satellite, Cable Sector

By Linda Moss -- Multichannel News, 11/3/2008 12:52:00 PM

Credit Suisse Securities has initiated coverage of the cable and satellite sector.

“In our view, the ‘utility-like’ nature of cable/DBS operators’ subscription services will prove resilient in a weakening economy,” the Wall Street firm said in a report by analysts Stefan Anninger and Spencer Wang. “As a result, we view the group as a relatively safe haven for investors amid the current turmoil in the financial markets and the economy.”

Credit Suisse said that it prefers cable over direct broadcast satellite.

“Although consumers’ price sensitivity toward communications services and the lack of technology differentiation is neutral to negative for both cable and DBS, cable’s ability to bundle should provide a competitive advantage over the intermediate term,” Credit Suisse said.

“Also, given that broadband users consider speed and reliability to be as important as price when selecting an Internet provider, this is a positive for cable in the context of DSL competition,” the firm said in its report. “Note, however, that as the RBOCs roll out more fiber-based HSD (high speed data) offerings, with higher speeds and better reliability, cable’s HSD advantage will likely wane.”Credit Suisse has initiated coverage on Comcast with an outperform rating, but rated Time Warner Cable a neutral.

“We prefer the former’s bandwidth management plans and greater capacity in the intermediate term to return capital to shareholders,” Credit Suisse said. “We also see greater risk in the near term to top-line growth for TWC as well as technical pressure from increased float related to TWX’s divestiture in TWC. Conversely, our survey suggests that DBS may be disadvantaged because of its inability to bundle other services with its core video product and the lack of major interest in the synthetic bundle. Although DBS has the lowest-priced video offering currently available, price pressure could erode returns over the long term. We remain relatively cautious on the DBS group.”

Credit Suisse rated both Dish Network and DirecTV a neutral.

“Although, we believe Dish now offers a more compelling HD (high-definition) offering, which should reaccelerate ARPU growth and reduce churn, the potential impact of the TiVo litigation on Dish’s cash position gives us pause,” Credit Suisse said. “We initiate coverage on DirecTV with a neutral rating, as we believe its first-mover advantage in HD could prove difficult to sustain as cable and Dish become increasingly focused on this opportunity.”