The general understanding of just what cable companies can get away with charging for residential broadband while still maintaining customer growth continues to be challenged by Cable One’s business model, says MoffettNathanson analyst Craig Moffett.
In short, Moffett says, Cable One’s paltry 1.5% growth rate of its residential broadband customer base in 2017, despite having limited competition for wireline internet services, shows that as operators keep increasing speeds and prices, subscriber growth will suffer more than anticipated.
Cable One faces “the most limited broadband competition of any publicly traded operator, and they have the lowest starting penetration,” Moffett said in a note to investors this week. “Should they not be growing broadband the fastest of anyone? If price elasticity is greater than anyone thinks, how long is the runway, not just for Cable One, but for any operator choosing a strategy of price increases rather than unit growth?”
This is an essential question in the cable industry, which is, generally speaking, increasing the price it charges customers for broadband as it delivers faster and faster speeds.
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“Is this not, after all, the most important question facing the cable industry (and its investors)?” Moffett added. “Behind all the laser-like attention paid to competitive overlaps with each flavor of Telco broadband, there is an assumption that it is technological superiority that matters most. Cable broadband will win decisively against legacy DSL, less decisively against FTTN, and play to a draw, or something close, against fiber-to-the-premises. The only thing that matters is starting penetration.”
This week, Cable One reported average revenue per user (ARPU) growth for residential broadband in the fourth quarter at 7.2% to 67.14. This is an acceleration over the 5.6% increase reported in the third quarter.
“The business won’t have achieved real balance until they become less dependent on outsized increases in a number that is already high enough to (apparently) be choking off incremental growth,” Moffett said.
This is not the first time Moffett has given midsized Phoenix-based operator Cable One an outsized presence in the cable industry. Last year, he reported that executives at larger operators were concerned that Cable One’s steady ARPU increases would draw the attention of government regulators.