U.S. cable has been routing the telco competition on the broadband front, but a top industry analyst says he’s concerned about whether MSOs can sustain their rate of growth as the DSL opportunity dissipates and operators face more competition from fiber-fed ISPs.
“Cable’s victory in broadband is turning into a rout,” Craig Moffett of MoffettNathanson explained in a research note issued Wednesday. “But beneath the surface there are reasons for watchfulness, if not for outfight concern, for cable.”
He said U.S. broadband is “rapidly approaching saturation” while the pool of DSL subs from which cable has drawn from is likewise “rapidly dwindling.” In Q3, cable captured 118% of market growth in broadband, as the rate of growth accelerated to 6.4% -- “the fastest pace in years.” The telcos, meanwhile, lost ground.
As for threats, Moffett points the finger at AT&T, which is expanding the reach of its fiber-based GigaPower platform. Moffett, who also accounts for FTTP and advanced DSL competition coming from Google Fiber, CenturyLink and Windstream, also said AT&T’s strategy to migrate more pay TV subs to the DirecTV platform will enable the telco to repurpose capacity so it can offer speeds of at least 25 Mbps more broadly and, thus, compete with cable more directly on a speed basis.
“We are approaching the ceiling,” Moffett wrote, noting that broadband service today has a penetration rate of 79% in the U.S. However broadband is available to 96% of U.S. homes, so the homes that have the option to buy Internet service from a residential wireline ISP is actually 81%.
Another barrier to adoption growth, he said, is that 61% of non-broadband subs don’t own a computer, and 48% earn less than $25,000 per year, which could keep some consumers priced out of the market.
Given that full scenario, Moffett’s updated model now calls for residential wired broadband penetration to rise to 86% of occupied U.S. homes, or 89.6% of homes that can get wired broadband, within five years. That, he said, represents a further deceleration to 1 point of penetration per year versus today’s 2.3 points per year.
“To maintain momentum, cable operators will have to take share from FTTN…buildouts that offer meaningfully higher speeds than legacy DSL," he added. “Can they?”
With everything factored in, Moffett now projects that cable’s long-term share versus DSL will rise to 90%, its share versus IP-DSLAM will increase to 70%, while its share versus fiber-to-the-node and FTTH will stay at 55% and 40%, respectively.