Broadband Growth Offsetting Video Declines; FCC Unlikely To Regulate Pricing, New Street Says
Cable companies losing video customers isn't as dire an issue as it seems, with broadband revenue per user picking up the slack, New Street Research said Wednesday in an analysis of 2015 cable trends. Despite the dropping video numbers, "We…
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are bullish on U.S. cable because we believe investors are underestimating long-term broadband penetration, the broadband repricing opportunity, the enterprise opportunity and the wireless opportunity," the firm said in the 60-page report, saying those factors will drive cable companies' free cash flows. It also called concerns about regulation and over-the-top competition "overblown." In the most recent quarter, 1.8 million households dropped pay-TV services in favor of OTT -- or nothing -- meaning about 17.6 percent of total households are without a pay-TV service, New Street said. Multichannel video programing distributors have lost roughly 4.6 million customers over the past six years, a trend that's picking up speed, New Street said, but when those customers drop pay TV, the $10-per-customer each represented in free cash flow is replaced by the roughly same amount their broadband bills typically go up, New Street said. In fact, households that opt for OTT service "are more likely to take a cable service than a competing telco offering (given faster speeds), and they are more likely to opt for a higher speed tier," New Street said. Meanwhile, worries that the FCC will use its Communications Act Title II authority to regulate broadband prices are incorrect because the agency doesn't have "either the desire or the ability" to do so, the firm said, noting the agency passed on any price regulation in the AT&T/DirecTV merger. The FCC also likely won't respond as Comcast goes further into testing usage-based pricing, it said. Pay-TV penetration should "stabilize and even grow, despite OTT pressures" because of its growing broadband business, New Street said.