Though there’s a fixation on falling pay TV numbers, that’s not the big issue for the cable industry, a top industry analyst says.
“Cable is a broadband story, and every investor knows it,” Craig Moffett, analyst with MoffettNathanson, pointed out in a new U.S. broadband study released today.
Comcast also knows it, as company CEO and chairman Brian Roberts noted during the company’s Q3 call that broadband is becoming the “epicenter” of the company’s relationship with the customer.
But that broadband story, Moffett stresses, is now under increased pressure. While speeds continue to rise, the rate of broadband subscriber growth continues to decelerate.
With most Q3 2017 data in, the rate of industry broadband growth has slowed to an all-time low of 2.8%, Moffett said. Total broadband net adds in Q3 2017 were 568,000, versus 731,000 in the year-ago period.
“Broadband appears to be inching towards saturation, and the growth rate of the market has (predictably) slowed down,” Moffett said, adding that it’s a key reason why he downgraded the cable sector to “neutral” in June.
With broadband penetration on the brink of 80%, the last 20% will come slowly, impeded in part by factors that include a lack of rural availability and slow new housing formation.
Moffett said the trend is short of alarming for cable, which continuous to capture the lion’s share of this saturating sector.
But the big concern he sees for cable on the horizon is the aggressive expansion of AT&T’s FTTP footprint, and a current comment to reach 14 million residential and 8 million business “locations,” along with planned use of 5G technology to deliver gigabit-class speeds.
“AT&T’s broadband upgrade plans – assuming they are fully funded – will have an impact on market share,” Moffett explained. “The magnitude of the change depends on the specific overlaps between operators and of course on the rate at which AT&T builds out fiber and 5G.”
With other telco activity factored in, FTTH and equivalent services that deliver gig-speeds from that group will cover 32% of the country, up from 23% in the prior forecast, Moffett noted.
Accounting in large part AT&T’s plans, Moffett has likewise altered the previous forecast that total cable broadband penetration from 55% of addressable homes, to 51%.
Still, that updated analysis doesn’t significantly change the firm’s thesis on cable, which sees a deceleration in unit growth being offset by pricing changes in broadband.
Among individual MSOs, Moffett has lowered his target price on Charter Communications from $375 to $350 and maintained his “neutral” rating.
His target on Comcast is unchanged at $45 with a “buy” rating, holding that the company is materially undervalued.
And he’s kept the target on Altice USA at $28, but reduced CableOne to “sell” with a lower price target of $529 (from $560), noting the recent sharp drop in shares and the view that the company is significantly overvalued.