MSOs Increase Infrastructure Spend 25% Over 5 Years: Jeffries Report

MSOs continue to push optical fiber closer to subscribers, making major capital investments in order to leverage DOCSIS 3.1 and full duplex DOCSIS technology to drive additional future subscriber growth.

This, in turn, is creating a long-term opportunity for cable infrastructure vendors, wrote George Notter, managing director of equity research at Jeffries & Co., in a research brief.

The pace of investment in cable network infrastructure is picking up, he said.

"User traffic and speed tier growth are big levers for cable capex spending. In our base case, our forward-looking model for cable network infrastructure suggests that the market will grow at a 15%+ CAGR over the next five years," wrote Notter. "With user traffic and speed tier growth at the high end of historical ranges (i.e. our upside case), growth for cable infrastructure equipment could reach a 25% CAGR."

With so much money invested, cable operators obviously expect big payoffs -- both short- and long-term. These projects will empower operators to fully leverage their DOCSIS 3.1 investments, Notter said. This year, MSOs are predicted to increase aggregate capital spending by 4.5%; they'll see year-over-year cable revenue growth of 4% and cable EBITDA growth of 8%, he added.

Competition, traffic growth and an attractive return on investment despite challenges from over-the-top players, telcos and new arrivals in the market are driving MSOs' increased expenditures, according to Notter's analysis. Since only 46% of the market uses cable operators' ultra-broadband Internet offerings and next-generation network access solutions build on existing networks, the ROI for investing in these cable MSO networks remains high, he wrote.

"Deep fiber, remote PHY and virtual CCAP are critical enablers for 1 Gbps service offerings. Advanced modulation schemes in DOCSIS 3.1 and full duplex DOCSIS require that operators push fiber deeper into their networks," said Notter. "Similarly, by pushing functionality from headends [and] distribution hubs into their optical nodes and embracing virtual CCAP, MSOs can also deal with real estate challenges in the future."

These real estate challenges include MDU ownership issues that can slow approvals and the lengthy processes that can surround trenching, for example.

Earlier this week, Jeffries reported on several cable operators' investments in high-fiber coaxial cables (HFC) that are already underway, wrote Mari Silbey in Light Reading.

Comcast, for example, is beginning a four- or five-year project to deploy an additional 1 million optical nodes beyond its existing 250,000 to 300,000 nodes currently in place. For its part, Cox Communications reportedly is in the process of a 10-year project that extends its HFC plant and looks to grow its footprint to 200,000 nodes over the next decade from its current 25,000 nodes, wrote Silbey.

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