U.S. cable operators, led by the biggest one of all, Comcast, are about to make a lot more on residential and business broadband.
That’s the conclusion of New Street Research, which just released a rather bullish report this morning on the cable industry.
Led by analyst Jonathan Chaplin, New Street concedes that the previously torrid pace of cable broadband marketshare growth has slowed a bit in recent quarters, due to factors such as aggressive triple-play promotions by AT&T.
But those headwinds will soon clear, the investment research firm concludes, and with that will be increased ARPU for cable operators.
“We have argued that broadband is underpriced, given that pricing has barely increased over the past decade while broadband utility has exploded,” New Street said. “Our analysis suggested a ‘utility-adjusted’ ARPU target of ~$90. Comcast recently increased standalone broadband to $90 (including modem), paving the way for faster ARPU growth as the mix shifts in favor of broadband-only households. Charter will likely follow, once they are through the integration of Time Warner Cable.”
New Street added that “broadband pricing could double from current levels.”
Meanwhile, the firm contends that cable is better insulated from the current cord-cutting trend than most.
“The traditional pay-TV market saw the worst loss of subs on record this quarter,” the investor note said. “We don’t expect this trend to change anytime soon; however, we think cable should be somewhat insulated because: 1) they should take share in a declining market, helped by the pull-through effect from growing share in broadband; 2) we don’t think cable makes much money in pay-TV. In fact, the [free cash flow] lost from subs dropping pay-TV is generally recovered through higher HSD pricing.”
New Street’s bullish take on the top three publicly traded U.S. cable companies—Comcast, Charter and Altice—also included a nod to Comcast’s early wireless efforts.
“Comcast has been pleased with the early results of its wireless offering,” New Street said. “We continue to believe the economics of the offering, which leverages an MVNO with Verizon, are much better than the market appreciates. We estimate incremental margins of ~20% today, rising to over 40% in time. While these economics are adequate, we believe that Cable will eventually seek owners economics, through network sharing agreement, or an acquisition of a Wireless carrier.”