Moody’s: Broadband Subs To Surpass Video in 2015

High-Speed Data, Video Customers Currently Tied at 50M Each
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High-speed data customers will surpass video customers for cable companies by next year, according to debt rating agency Moody’s Investor’s Service, as cable operators concentrate more on selling higher-margin data services.

Already cable HSD and video customers are about even: Moody’s estimates that they both reached about 50 million subscribers in the first quarter of this year. As more and more customers consider broadband service an must-have product – a Pew Research Center study showed that 53% of adults said it would be “very hard or impossible” to give up their broadband service while just 35% said the same for TV – Moody’s predicts that cable operators will make it easier to unbundle broadband offerings.

Broadband has become an anchor product for most households and we believe a primary purchase decision for anyone moving into a new residence,” Moody’s wrote in a report by lead author and Moody’s vice president and senior analyst Karen Berckmann.

Cable operators have been aggressive on the broadband front, with many increasing speeds for free. That product leverage cold help cable operators charge more for standalone broadband service, which in turn could help make up for lost video revenue.

“Video is the lowest-margin product, so, all else being equal, fewer video subscribers mean higher margins,” Moody’s wrote.

That cushion could also help cable operators in their battle against rising programming fees.

Cable operators have long complained that rising video programming costs are hampering their ability to compete. Moody’s estimates that as those costs continue to climb, the case for emphasizing broadband service over video service becomes more appealing.

Some small cable operators are already doing just that. Moody’s pointed to Wave Broadband, a Seattle-based small operator that has about 24% video penetration, compared to about 40% for the rest of the industry.

While Wave is likely losing economies of scale because of its low video penetration rate, its overall cash flow margins are in line with the rest of the industry at about 40%, making the added focus on high-speed data “a reasonable trade-off,” Moody’s said.

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