Cable’s Growth Engine Shows Signs of Stalling

No Easy Fix For High-Speed Data Slowdown
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While cable broadband speeds continue to accelerate toward 1 Gigabit per second, the rate of subscriber growth is starting to slow down.

And some of the industry’s top analysts are making note of this trend, as the U.S. cable broadband market gets saturated and customer subscriber growth starts to show signs of stalling.

Worse for cable operators, there doesn’t appear to be any quick-fire way to stoke growth in the broadband sector in the near-term, though MSOs are trying on some new strategies and tactics for size.

In the third quarter, terrestrial broadband growth fell to only 3.4%, Moffett Nathanson Research partner and senior analyst Craig Moffett wrote in a research note that asked a scary question: “Is Cable Broadband Finally Hitting a Wall?”

Terrestrial broadband penetration now stands at 73% of U.S. homes, an increase of 2.5% from a year ago, according to Moffett’s estimates.

That trend was not lost on ISI Group analyst Vijay Jayant. U.S. cable, he explained in a note issued last week, added 510,000 broadband subcribers in the third quarter, down from the 550,000 added in the year-ago period.

While cable continued its overall dominance — accounting for 78% of the quarter’s broadband additions — the industry’s share is down from 90% a year ago, he wrote. The losses were due largely due to Time Warner Cable, which for the first time ever lost high-speed Internet subscribers, he noted.

By contrast, every major U.S. telco except for AT&T and Windstream gained broadband subscribers, and all but Windstream and CenturyLink saw significant year-on-year improvements.

Cable operators’ satellite competition inflicted more pain. Dish Network, for example, added 75,000 net broadband subscribers in the third quarter, giving it a total of 385,000, a 24% jump versus the second quarter.

Moffett suggested cable operators will likely need to concentrate on lower-income households to stoke broadband subscriber growth.

And the issue varies by operator. While Comcast, Cablevision Systems and Time Warner Cable grapple with high broadband penetration levels, Charter Communications’ troubled past has left it with lower penetration levels and, therefore, more room to grow using higher-end 30 Megabits-persecond and 100-Mbps service offerings while eschewing lower-margin and lower-speed “lite” tiers.

TWC, by comparison, is looking to find broadband growth by targeting digital subscriber line customers in its footprint with a new $14.95 highspeed data offering; its goal its to convert at least 500,000 DSL customers to TWC broadband in the next 18 months.

Comcast, meanwhile, is the first U.S. cable operator to broadly test a prepaid Internet offer that targets lower-income “unbanked” consumers. Comcast’s no-contract, prepaid Internet service features a Starter Kit that includes a DOCSIS 3.0 modem, the required cabling and 30 days of Internet service for $69.95. After 30 days, customers can refill the service at a rate of $15 for seven days or $45 for 30 days, using a credit, debit or specialized prepaid card at xfinityprepaid.net.

The prepaid service is only available to consumers who don’t get a postpaid service from the operator, or don’t qualify one due to credit issues or other limitations. Comcast has not said how many customers have taken the prepaid option since it began to test out the product about a year ago.

TAKEAWAY

Cable broadband service — long the industry’s growth engine — appears to be nearing a saturation point, posing a challenge for MSOs.

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