Moffett: Cable Broadband Growth Running Out of Steam

Can Emerging Prepaid Internet Services Keep The Fire Stoked?

Don’t look now, but one of cable’s most reliable growth engines in recent years appears to be running low on fuel.

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

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

“We continue to see steady gains to at least 80% penetration, but at current run rates that’s only three years away, and it must be noted that broadband is now nearly saturated among middle and higher income cohorts,” Moffett explained, noting that both Time Warner Cable and Cablevision Systems both reported broadband customer losses in the third quarter. “By contrast, every major TelCo save AT&T and Windstream gained subscribers, and all but Windstream and CenturyLink saw significant YoY improvements.”

About a year ago, cable was capturing the bulk of the industry’s terrestrial broadband growth, with “flow share” that was north of 99% in the third quarter of 2012. This year, cable’s third quarter flow share dipped to 78%.

“To be sure Cable is still taking share…but it is doing so at a much more modest pace,” Moffett said, pointing out that “[g]rowth from here will require adoption among low income households, many of whom don’t even own computers.”  

Moffett's longer-term forecast for broadband in all categories shows that broadband subscriber  growth will be hard to come by for all types of fixed network broadband providers, with DSL expected to continue a steady decline.

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Moffett didn’t offer any quick-fire remedies, though cable operators have rolled out low-priced, entry-level broadband tiers to convert dial-up users and tailor offers for the lower income bracket. TWC, meanwhile, is gearing up to restoke broadband growth by going after DSL customers in its footprint with a new $14.95 high-speed data offering, with a goal of converting at least 500,000 DSL customers to TWC broadband in the next 18 months.

Comcast, meanwhile, is pursuing the lower-income market and "unbanked" consumers with the quiet rollout of a prepaid Internet service to most if not all of its properties.

Comcast hasn’t announced when it will launch a prepaid Internet product commercially, but the Web site dedicated to the product makes no mention that its current prepaid service is merely a test.

Comcast’s no-contract, prepaid Internet service features a Starter Kit, which 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 for either seven days for $15, or 30 days for $45, using a credit, debit or a specialized prepaid card at 

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. The prepaid service also limits speeds to 3 Mbps downstream and 768 kbps upstream, presumably to ensure that it does not cannibalize its regular broadband product.

Comcast is also testing a prepaid TV product in Detroit.