A steep increase in mobile subscribers, competition in fiber expansion, and shifting consumer habits due to the COVID-19 pandemic contributed to an unstable year for cable stocks in 2021 and set the scene for an uncertain 2022.
All three of the largest U.S. cable operators saw their stocks in negative territory year-to-date as of Dec. 27. Altice USA Inc. saw the steepest decline, with its share price down more than 57% year to date as of market close on Dec. 27. Shares in Comcast Corp. and Charter Communications Inc. were only down in the low single-digits over the same time frame, but that compares to a more than 27% increase for the S&P 500.
Growing competition
Analysts see a couple different factors at play, but the biggest drags on cable stocks in 2021 were increasing concerns around slowing broadband growth and rising competition from the telco fiber deployments.
"In all likelihood, telco broadband may provide mounting competition for wireline broadband-dominant cable over time," wrote Kagan analyst Mau Rodriguez.
Fiber provides ultra-fast, symmetrical speeds, meaning that upload speeds match download speeds. While cable internet speeds are very fast and can rival fiber's download speeds, cable's upload speeds are often slower, according to broadband comparison site BroadbandNow.
Fiber competition may be responsible for the decelerating subscriber gains seen across the industry in the third quarter of 2021, Rodriguez said.
For the third quarter, Comcast reported 300,000 net adds in broadband customers, versus 633,000 adds a year earlier and 379,000 in the 2019 period. At Charter, broadband customer net adds totaled 265,000 for the third quarter, down from 537,000 in the third quarter of 2020 and 380,000 in the 2019 period. Altice slipped into negative territory, losing 13,000 net broadband connections in the third quarter of 2021, versus gains of 56,000 and 15,000 in the 2020 and 2019 periods, respectively.
Altice in particular is seeing subscriber losses in its Optimum footprint where it competes with Verizon Communications Inc.'s Fios service. At a December investor conference, Altice USA CEO Dexter Goei said the company's broadband business is trending to be slightly negative in the fourth quarter.
That, he said, could lead the company to be down between 5,000 to 10,000 broadband customers in 2021, at the lower end of its estimates.
COVID-19 pandemic
Beyond competition, cable executives have also attributed the slowdown in subscriber growth to the effect of the pandemic, which caused many homes to sign up for internet service throughout 2020.
Charter Chairman and CEO Tom Rutledge said at a December investor conference that the cable company saw "an enormous amount of growth pulled forward" during the outset of COVID-19 as people worked and learned from home. As consumer behavior normalizes, Rutledge expects the broadband sector to return to more traditional subscriber growth patterns.
This could prove a double-edged sword for broadband providers, who have benefitted from subsidies offered during the pandemic to keep Americans connected to the internet. These subsidies helped cable providers hold onto customers who would have typically cut off services during a financial hardship, Recon Analytics analyst Roger Entner said.
"Both the Trump and Biden administrations have cushioned the financial impact of the pandemic more than any other administration during a financial crisis," Entner said.
The Emergency Broadband Benefit, or EBB, Program launched in May and aims to assist low-income households and unemployed workers. Benefits include a monthly broadband service discount of $50 per household, or $75 on tribal lands, and reimbursement for connected devices of up to $100 per household. Current EBB Program enrollees will continue to receive their current monthly benefits until March 1, 2022, while congress rolls out the Affordable Connectivity Program, a long-term replacement to the EBB Program.
Charter CFO Christopher Winfrey noted that net customer additions throughout the pandemic were higher than initially expected due to federal subsidy programs.
"We estimate that 60,000 of our residential internet net adds would not have occurred without the emergency broadband benefit program," Winfrey said. "Some of what we estimate as business-as-usual sales also enrolled in the [Emergency Broadband Benefit] program, as did some of our existing customers."
Mobile adds up
But it was not all bad news for cable operators in 2021.
Mobile additions in particular were a bright spot for cable during the year as companies took advantage of growing consumer demand for lower monthly bills and simplified plans. Both incumbent wireless carriers and cable companies continued adding record numbers of mobile lines into late 2021, but cable may come out a winner even if these adds drop-off in 2022.
"Cable wireless is now ready for its star turn. Cable wireless offers the potential for significant value creation for the [companies] and their investors," MoffettNathanson analyst Craig Moffett, a long-time cable bull, said in a research report.
In April 2021, Comcast added a multi-line discount for unlimited plans Charter customers with at least two mobile lines can now get unlimited service starting at $29.99 per month, per line. Previously, every line of unlimited service costs $45 per month. Charter's pricing is lower than entry level plans from AT&T Inc. and Verizon. Despite price cuts, companies like Charter and Comcast do not offer device subsidy deals of the same caliber of wireless competitors.
"We’d expect more of the pressure to be felt by the incumbents (AT&T and Verizon, whose pricing seems increasingly uncompelling) than T-Mobile US Inc.," New Street Research analyst Jonathan Chaplin wrote in a note.