Cable companies had trouble keeping up with the competition in the broadband space in the first half of the year, and strong results from wireless operators may indicate that trend remained unchanged in the third quarter.
All eyes will be on broadband adds when Charter Communications Inc. and Comcast Corp. report later this week, said John Fletcher, an analyst at Kagan, a media research group within S&P Global Market Intelligence. The fast and widespread rollout of mid-band spectrum has allowed wireless operators to strengthen their fixed wireless coverage areas and speeds. This, in turn, could significantly cut into broadband subscriber numbers for Comcast and Charter.
Last week, Verizon Communications Inc. reiterated its commitment to investing in its fixed wireless business. Verizon's fixed wireless customer base remains relatively small at just 621,000 as of the end of the third quarter, but it is a growing business line. Of Verizon's 377,000 broadband net additions in the quarter, 342,000 were fixed wireless net additions.
T-Mobile US Inc., which reports its third-quarter earnings on Oct. 27, is also expected to have strong growth in the fixed wireless space.
During the height of the pandemic, government subsidy programs helped cable operators hold onto broadband subscribers. But as those programs disappear and some customers seek low-cost but dependable internet options, cable companies have lost customers they had gained in early 2020.
New Street Research analyst Jonathan Chaplin believes investors will shun the cable stocks until consumer broadband subs return to sustainable growth.
"When fixed wireless broadband gross adds eventually stabilize, net adds will peak and start to decline. Cable adds should inflect around the same time. We still have limited visibility into timing, but it could happen in 4Q22 or 1Q23," Chaplin wrote.
Wireless growth keeps investors optimistic
While wireless companies are trying to attract cable broadband subscribers, cable companies are trying to win wireless customers from carriers. Cable companies offering wireless services captured 25% of all new postpaid account additions in the second quarter, according to Kagan research. Customers have been drawn to low-cost mobile bundles offered by cable operators.
Charter's Spectrum Mobile said during its second-quarter earnings call that it gained 344,00
"The bright spot remains mobile offerings; that's their biggest growth area currently. So, they better deliver there or investors will be really concerned," said Fletcher.
Continued video divestment
If mobile remains the bright spot for cable companies, video remains a dark mark. Like many previous quarters, video subscriptions are expected to free-fall once again. In addition to increased competition from streaming, inflationary pressure has put an even greater strain on the cable video environment since the pandemic. Cable operators failed to launch any new cable networks in 2022, instead focusing on broadening content on digital services as audiences continue to favor on-demand options over linear TV.
"Looking forward, we anticipate more linear network shutdowns in the years ahead as more consumers transition from traditional multichannel to streaming," wrote Kagan analyst Gino Amora. "Moreover, with operator video margins under pressure and consumers losing interest in linear TV, we do not expect new linear cable network launches."
Charter ended the June quarter with almost 15.5 million video subscribers, down from 16.0 million a year earlier. Comcast reported 17.1 million video customers in the June period, down from nearly 19.0 million a year earlier.
* See the highlights for fixed wireless in the prior quarter in our Q2'22 broadband update.
* See recent consumer-focused research, including wireless service by geography, in our Consumer Insights research index.
