Cable One CEO: Margins for Internet services reaching 50%

Cable One CEO Thomas Might worked to defend his MSO's decision to focus its attention away from obtaining video customers and instead on adding residential and commercial high-speed Internet users.

Speaking at the Wells Fargo Securities Technology, Media & Telecom conference in New York, Might said that the Phoenix, Ariz.-based mid-sized cable company is only doing what other companies have done when they encounter a "dog, a mature business." 

Presenting Cable One's case to investors alongside company CFO Kevin Coyle, Might said that 46 percent of the MSO's $805 million in projected 2015 revenue will come from broadband services, up from just 30 percent in 2010.

And while operating cash flow (OCF) margins for "product A" (video services) are at negative 25 percent, Might said OCF margins for "product B" (high-speed Internet) are in the 50 percent range. 

"It's new math," Might said. "Fast-forward 10 years, and product B dominates revenue and cash flow."

With Cable One adding only 572 residential broadband customers in the third quarter while losing nearly 19,000 video customers, Might's strategy has come under scrutiny from investors. 

"Absent unit growth in video or broadband, what remains are price hikes and cost cuts," said Craig Moffett, analyst with MoffettNathanson, in a note to investors on Cable One following the release of the company's third-quarter earnings last week. "ARPU is rising in video and broadband, and they have another recently announced $5 per month broadband price increase that kicks in in October. They have already jacked up video rates sharply to 'fix' video profitability. With solid cost management, they've managed to sustain and even grow EBITDA without volume growth (EBITDA was up 6.2% YoY)."

Moffett has also been critical about Cable One's decision not to invest in video services, noting that pay-TV is still important to potential acquisitions suitors like Altice. 

Might conceded that Cable One has lost 36 percent of its video subscribers since dropping Viacom channels in the spring of 2014. "Yes, we could consider pulling that lever again," he said, calling the downsizing "part of a bigger strategy" to increase video margins. 

"We've lost 36 percent of our [video] customers, but we're making more money," he said.

For more:
- visit the Cable One investor relations site

Related articles:
As Cable One drops another 19K pay-TV subs, company promises 2016 launch of GigaONE Internet service
Cable One's Might: 'We're smartly reducing the need for customer contact'
Cable One's broadband-first strategy has 'some critical holes,' analyst says

Suggested Articles

Streaming TV service FuboTV has expanded its deal with Discovery Inc. and in the coming weeks will add Discovery Channel, TLC and more to its base subscriber…

AT&T’s new DirecTV streaming service, due out later this year, is being packaged with a proprietary Android TV-based streaming device. But, the service…

Comcast is calling on its cable brethren, Charter and Cox, for a new initiative called On Addressability focused on building a “sound, scalable and sustainable…