Multiple forces fueling broadband's 'Great Deceleration' – analyst
Sluggish broadband subscriber growth hit US cable stocks pretty hard in the wake of Q3 2021 financial results, but there's no solitary reason to blame for this recent slowdown, says a top industry analyst.
Competition is, of course, playing a role in the "Great Deceleration" of broadband subscriber growth, but the overall impact is due to a confluence of forces, according to a new analysis from MoffettNathanson analyst Craig Moffett.
An addition to competition from new fiber-to-the-premises (FTTP) network buildouts and the nascent effects of fixed wireless access (FWA) services, Moffett surmises that the rate of overall broadband subscriber growth can be attributed to three other factors: depressed household formation, government stimulus dollars (particularly from the Emergency Broadband Benefit program), and the continual saturation of broadband service penetration.
Moffett estimates that wireline broadband subscriber growth in Q3 2021 slowed to 3.3% year-over-year, versus 3.9% in Q2 2021. Looking a level deeper, he says US cable's broadband growth rate slowed to 4.5% year-on-year, reaching levels last seen in mid-2018. US cable operators, he added, tacked on 274,000 fewer broadband subscribers in Q3 2021 than in the pre-pandemic period of Q3 2019.
Competition is (partly) to blame
Moffett surmises that competitive forces are having both a direct and indirect effect on US cable's reduced ability to capture new broadband customers.
The stabilization of the US telco broadband subscriber losses (US telcos gained 34,000 in Q3 2021 versus -234,000 in Q3 2019) "has clearly cut into Cable growth rates," Moffett explained in a 59-page report issued Thursday. "While it doesn't appear that TelCo fiber deployments and fixed wireless access are taking many subscribers directly from Cable, it does appear likely that these TelCo initiatives have drawn from DSL subscribers who might otherwise have gone to Cable."
Moffett believes that fixed wireless has "almost certainly played some role," but notes that it's not clear how many FWA customers are being captured in areas or market verticals not previously served by wired broadband. Of note, Verizon announced that it added 55,000 FWA subs in Q3 2021, for a grand total of 150,000, and T-Mobile is on track to have at least 500,000 FWA subs by year-end.
However, the precise impact FWA is having on cable broadband growth is unclear since there's not much data available on the origins of those FWA subs, and if they are coming from areas where cable competes directly, involve customers upgrading from DSL, or involve customers in areas previously unserved by broadband.
Moffett also reckons that new fiber builds are "just starting to gain momentum," so haven't had time yet to have a material impact on cable's rate of broadband subscriber growth. But that picture could change in quarters to come.
"Early fiber deployments, and even early fixed wireless access (FWA) rollouts, have helped stem TelCo subscriber losses. This is clearly the most concerning issue for Cable investors, particularly if it appears that this is just a taste of what lies ahead," Moffett explained.
Subsidies and saturation
Meanwhile, subsidies from the FCC's Emergency Broadband Benefit (EBB) program are also affecting wireline broadband subscriber growth. Though EBB is intended to boost broadband adoption for lower-income households, data from the Universal Service Administrative Company (USAC) shows that a surprisingly large position of EBB support recipients, 68%, are using the monthly subsidy for wireless service, not fixed broadband, the analyst said.
Moffett also believes that sluggish new household formation rates are also impacting broadband subscriber growth, as this part of the market has not been immune to supply chain bottlenecks that have hit industries far and wide.
Additionally, the broadband market is "inching closer to saturation," at roughly 82.3% at the end of Q3 2021. But Moffett acknowledged that flaws in FCC data likely understates the number of homes without access to wireline broadband.
To combat the saturation issue, both MSOs and telcos are expanding their broadband service footprints through "edge-outs" in adjacent areas. Those moves, which have largely been focused on rural, unserved or underserved areas, are helping those operators to expand faster than household formation alone, Moffett points out.
Slower growth ahead
Against this backdrop, Moffett expects cable broadband subscriber growth to slow further in Q4, and has adjusted his estimates accordingly.
He now expects Comcast to add 1.4 million broadband subs for full 2021, down from a prior forecast of 1.55 million. For 2022, he expects Comcast to add 1.25 million broadband subs, off from a prior forecast of 1.48 million.
Moffett sees Charter adding 1.29 million broadband subs in 2021, down from a prior forecast of 1.46 million. In 2022, he expects Charter to add 1.22 million broadband subs, down from a prior forecast of 1.35 million. The analyst's 2022 forecast for Charter includes additions of about 33,000 subs related to the operator's Rural Digital Opportunity Fund (RDOF) buildout.
— Jeff Baumgartner, Senior Editor, Light Reading
A version of this story first appeared on Light Reading.
Charter has sparked RDOF work in all 24 states where it won bids. The cable op booked about $19 million in RDOF revenues in Q1, and expects to have about $9 million per month come in over the next ten years.
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