Lurking somewhere beneath the hum of cable technology discussions at the recent Society of Cable and Telecommunications Cable-Tec Expo was a murmur of vendor concern about cable's residential data play.
There are signs that MSOs may have reached a plateau in data growth.
Terayon Communication Systems Inc. CEO and co-founder Zaki Rakib sounded an early warning during a panel session at the San Antonio gathering. Despite continued cable-modem service rollouts, the modem-maker executive said, U.S. growth rates seem to be leveling off.
"There is demand, but not necessarily growth," he said.
Quarterly results from the top six U.S. cable operators over the past year appear to bear that out. For AT&T Broadband, Time Warner Cable, Comcast Corp., Cox Communications Inc., Adelphia Communications Corp. and Charter Communications Inc., the number of total new subscribers peaked in first-quarter 2001 at 841,900 additions, according to Multichannel News
calculations drawn from quarterly reports.
But the pace of growth leveled off in the remaining quarters of 2001. Additions totaled 701,000 in the second quarter of last year, 808,000 in the third quarter, 822,000 in the fourth quarter and 819,800 in the first quarter 2002.
By contrast, in 2000 the number of quarterly additions rose every three months. Operators started out with 362,500 new subscribers in the first quarter and finished with 831,800 in the fourth quarter.
NEED MORE PRODUCTS
Aside from the service disruptions during and after @Home Corp.'s implosion, a major factor that could be stunting data's growth is the fact that broadband access is still one-size-fits-all, noted Rakib. Consumers aren't offered many pricing or speed options, so cable operators have fewer weapons to use in getting beyond the initial base of early-adopting technophiles.
Fellow modem vendor Com21 Inc. has also seen that trend as it reforms its cable business.
"We think perhaps as they realize the residential market is flat — and has been flat over the last three quarters — they will start to look to business markets," said senior vice president of marketing Ehsan Rashid. "The reason it continues to be flat is because of DSL and some other methods have continued to keep up the pressure.
"With [competitive local-exchange carriers] out of business, the [independent LECs] are able to put more focus on DSL. It's something that should concern cable."
STUDY: UP STEADY
A recent PriceWaterhouseCoopers study projects that cable-modem growth is likely to keep steady through 2006, but isn't likely to rise sharply.
The financial-analysis firm projects MSOs will add roughly 2.6 million cable-modem subscribers per year from 2002 through 2005, leveling off to 1.9 million new subscribers per year between 2005 and 2006. Total cable-modem customers will rise from 3.5 million in 2001 to 17.4 million during 2006.
Meanwhile, larger-volume cable-modem vendors say the leveling growth trend does not necessarily raise alarms that the cable data market is faltering.
Toshiba America Information Systems Inc., which claimed the top modem sales spot in the U.S., is still seeing healthy business.
"We're not seeing the MSOs slowing down at all, certainly with what they have been ordering," said Toshiba marketing communications manager Chris Boring.
That said, new customers have been connected at a level pace over the past year.
"But we don't anticipate that number dropping in the next few years," Boring said. "They will continue to grow the business, but I think the percentage of growth will be lower. But because of the greater size of the market, it is not of a concern."
As the market matures, it's natural for growth to level off. That presents a new challenge, but not a death knell, Boring said.
"There will be some point and time where it will become a challenge," he said. "The question then is whether the MSOs will become more aggressive in their marketing and in their product."
Similarly, Scientific-Atlanta Inc., which in the past year re-entered the modem business, is not yet seeing a slowdown.
S-A director of strategic marketing for subscriber networks David Davies took note of Rakib's comments, he said, but was somewhat surprised.
"If this turns out to be the case, obviously, it is of concern," he said. "But we are confident we can continue to grow our business. I would be surprised if it were slowing down at 10 to 12 percent penetration. It seems a little early."
Davies also noted that other factors — most notably the emergence of Data Over Cable Service Interface Specification 1.1 — might well alter the growth picture. With the greater ability to create tiered data rates and offer quality-of-service, DOCSIS 1.1 systems may "become similar to airline pricing models, where you maximize a total number of users in different pricing levels," he noted.
Another factor is bundling, through which operators can offer discounts to customers for taking multiple services.
It "will be interesting to see how that affects penetration," Davies said.