European Cable Operators' Broadband Investments Pay Off: Report

Despite competition from OTT providers and recent pay-TV subscriber losses, European cable broadband grew over the past five years in both scope and profitability.

As a result of steady investments in ultra-broadband, cable operators added more than 6 million new revenue-generating units between 2014 and 2016, according to "Cable in the Gigabit Era," a presentation by independent analyst Ben Keen (formerly of IHS Markit), during Cable Congress this week.

And after operators have made their infrastructure investments, broadband subscribers become two to three times more profitable than pay-TV subscribers, on average, said Keen.

"Once the infrastructure investment is made -- and the capital is in the ground -- the broadband service is mostly profit as the ongoing costs are tiny compared to the ongoing content costs," he told UBB2020.

MSOs also are spending on original content: Video revenue accounted for £12.8 billion (about $15.6 billion at today's rate) of video revenue in 2016 versus £11.4 billion (approximately $13.9 billion) in 2010, IHS Markit reported. But content is expensive. Both Sky and Liberty Global spend about 60% of total video revenue on content. Competitor Netflix Inc. (Nasdaq: NFLX) lays out about 58%, while Amazon.com Inc. (Nasdaq: AMZN) expends over 130% of its video revenue on content, the research firm found. (See Liberty Global Bases Growth on Speed, Content.)

"Long term there is little they can do to keep content costs down as they are being driven up by forces beyond their control. The global OTT players have changed the rules of the content game as they buy up exclusive worldwide rights to drive their internationalization," Keen said. "Operators like Liberty have started to invest in exclusive content on an opportunistic basis to generate a positive halo effect they hope will advance their brand appeal with consumers."

Average revenue per unit for Western European cable operators' pay-TV net subscriber additions increased 16% between 2011 and 2016. And all but two countries -- Armenia and Lithuania -- saw broadband gains, said Keen.

DOCSIS 3.0 is ubiquitous in Belgium, Cyprus, Finland, Netherlands, Norway, Portugal, Spain and the United Kingdom, and available at almost 100% of cable homes in Denmark, Switzerland, Germany, France and Ireland, according to IHS Markit data. In Croatia, which has the lowest adoption, 80% of networks use DOCSIS 3.0, the report found. By 2020, 15.8 million Western European connections will use VDSL, DOCSIS 3.0 or 3.1, compared with 12.2 million connections last year, the research firm said.

"At least six European operators are already testing or starting small scale commercial deployments of 3.1 and I definitely expect that to continue," added Keen.

Related posts:

• Fiber Bolsters Orange's Financials
• Why Ultra-Broadband Is Thriving
• What Is Europe's Real FTTH Price Tag?

— Alison Diana, Editor, UBB2020. Follow us on Twitter @UBB2020 or @alisoncdiana.