While some of the largest U.S. cable operators posted strong net broadband additions for the third quarter, certain industry analysts believe the growth may have come at the expense of pulling forward projected gains for 2021.
Comcast Corp.'s cable business reported 633,000 net high-speed internet additions for the third quarter, the best quarterly number in Comcast's history. Meanwhile, Charter Communications Inc.'s internet customer additions were up 8.8% year over year. Altice USA Inc. reported about 26,000 residential broadband net additions in the third quarter, compared to approximately 15,000 in the year-ago period. However, some analysts are worried that the growth could have repercussions next year.
"Whatever the cause for the strength ... it is reasonable to assume that much of this is a pull-forward from future periods, not a step-change in sustainable growth," wrote MoffettNathanson analyst Craig Moffett in a recent report. "Penetration is simply too high in the United States for there to be any other plausible reading," he added.
Moffett said that if these companies see a deceleration in growth in 2021 and 2022, it could "spook investors."
Kagan analyst Tony Lenoir expressed a similar sentiment.
"I would say that the spike in annual gains this year suggests some of the anticipated future gains were pulled forward in 2020 due to the economic and social repercussions of the pandemic," he said in a Nov. 5 email.
Kagan is a media research group within S&P Global Market Intelligence.
However, Jeffrey Wlodarczak, Pivotal Research Group's principal and senior analyst of entertainment and interactive subscription services, sees reason to assume the growth will continue for at least one major cable company.
In an Oct. 30 research report, he wrote that his positive investment thesis for Altice remains "intact," and he noted that cable data "should accelerate further in ’21."
While he says cable data has become "nearly as important as food/water to households" during the pandemic, he thinks that will continue after the pandemic.
On Charter's Oct. 30 earnings call, company executives were asked by an analyst whether the company's 2020 broadband gains could result in a below-average year next year.
"Whether that was a pull forward or not, I don't know, but it doesn't go backwards," said Charter CFO Christopher Winfrey.
He sees a couple of trends at play driving growth, including mobile-only households realizing amid the pandemic that they need broadband in the home.
"The need for the product is there. I don't think it goes away. I think it's a permanent either shift or trend of reducing the mobile-only and requiring more broadband in the household," Winfrey said.
Charter CEO Tom Rutledge noted that beyond the pandemic, other factors will continue to impact broadband adoption.
"Yes, COVID had some impact on broadband adoption, but so does the change in the video business that's going on rapidly," he said.
Specifically, he said more people are using IP-connected devices to bring video services that the company would have traditionally delivered over the air or by cable, which he said increases overall demand for broadband in the home.
Comcast executives also said the growth of streaming options is helping the company attract and retain broadband customers. In particular, Comcast CEO Brian Roberts pointed to the company's own Peacock streaming service.
"It is clear that Peacock's results are enhanced by the placement and distribution it gets through our broadband service, and adding Peacock to broadband is resulting in significant improvement in both churn and gross adds," Roberts said.
