For a decade cable companies have been losing millions of video subscribers from cord-cutting. During that time broadband subscriptions continued to grow, becoming a significant profit center. That could change based on the second quarter earnings report. ComcastCMCSA -1.1% and Charter, the two largest cable companies, both reported a decline in broadband subscribers. It marked the first time their quarterly broadband counts had dropped. Whether this is the start of a trend (similar to video subscribers) or an aberration remains to be seen. Nonetheless, the stock price fell in the aftermath of the news for both companies.
Comcast is the largest broadband supplier passing 60 million households and businesses and has 32 million customers. In second quarter Comcast reported a decline of 10,000 subscribers with an additional decrease of 30,000 in early July. Despite the recent decline, over the past twelve months Comcast has gotten a net gain of 800,000 broadband subscribers. Similarly, Charter lost 40,000 broadband users in second quarter. By comparison, in the second quarter of 2021, Charter reported an increase in broadband subscriptions of 365,000.
During the earnings report call Comcast executives cited a few reasons for the unprecedented drop-off. The exceptional increase in new broadband connections during the pandemic had come to a halt. Also, in second quarter fewer people changed had their address limiting the need for a new broadband subscription
In response to the decline, Charter cited a loss of subscribers from the FCC’s subsidized Affordable Connectivity Program. The government program provides qualifying low-income households a monthly discount which had dropped from $50 to $30 for broadband services earlier in the year. Charter noted they lost customers with the change as subscribers either opted out or did not meet the new threshold. When the government programs were excluded, Charter said they would have had an additional 38,000 subscribers.
Cable operators are also facing increased broadband competition from telco companies, notably T-Mobile, Verizon and AT&TT +0.6%. All three have been ramping up their broadband capabilities in recent years. For example, T-Mobile has high-speed fixed wireless access available to over 40 million homes. In the second quarter T-Mobile added a reported 560,000 subscribers citing half the new customers had come from cable. Kannan Venkateshwar, a media analyst at Barclays notes that if T-Mobile adds 500,000 each quarter, they would surpass Altice as the fourth largest broadband provider by year end.
Comcast claims cable broadband provides customers with twice the speed of fixed wireless. Furthermore, fixed wireless is subject to any bottleneck on 5G networks. Cable, by offering broadband directly into subscriber homes, does not have that restriction. In a recent earnings report, T-Mobile cited a recent study from Ookla that pointed out the average speed of their 5G connections were faster than cable broadband. At a flat monthly rate of $50, the cost of broadband from T-Mobile is lower than the estimated fee of $70 for cable broadband.
Verizon has also been ramping up their broadband capabilities. In second quarter Verizon announced they had 168,000 net new fixed wireless subscribers to homes. The telco company now has 384,000 total fixed wireless customers. Verizon has set a goal of 4 to 5 million wireless subscribers by year end 2025.
Cable companies have been rolling out their own lower cost wireless broadband service. In total, Comcast (Xfinity Mobile) and Charter (Spectrum Mobile) now have nine million wireless cable subscribers. In second quarter Comcast’s wireless revenue grew by 30% accounting for 5% of its revenue. MoffattNathanson expects strong growth in the years ahead, becoming a greater revenue source for both companies. Collectively, Comcast and Charter are projected to have 16 million wireless subscribers by the end of 2025. Under an existing agreement Comcast and Charter share wireless with Verizon.
Cox Communications, the third largest cable operator, has plans to launch a wireless service by fourth quarter. Other cable companies are also active in providing wireless broadband. Cable operators plan to bundle wireless with broadband in hopes of lowering churn.
In a recent forecast from Kagan, expects broadband growth to become more competitive among cable, telco and to a lesser extent satellite providers. The report expects broadband connections in U.S. households will surpass 90% penetration reaching 122 million by year end, slowing growth rate. Kagan projects cable’s market share to drop to 61.9% by 2026 with telcos expecting an increase in market share benefiting from fiber rollout. Satellite is expected to maintain a 1% market share. Forbes