Bank: Tough times ahead for US cable
January 20, 2023
By Chris Forrester
Investment bank Exane/BNPP, in a major examination of US cable (The Twilight of Cable) says that while the first half of 2023 might see some gentle recovery from the 52-week ‘lows’ in December, there will be more pain to come.
“We think near term sub growth (from promotional activity) and broadband price increases can flatter financials for in 1H/2023,” says the bank’s report. “However, our experience of convergence in global markets underpins our conviction that the downside is still underestimated (ARPU decline) given the asymmetric risk profiles embedded in the market structure. Operators pushing convergence are impinging on competitors profit pools.”
The bank cautions that while operators might be depending on things working out and helped by mobile subscriptions, the bank is blunt: “[That] almost never works out OK. We review multiple global fixed-mobile convergence examples to show, whilst it is the only playbook, the road ahead leads to a different country. Whilst cable convergence pricing is aggressive, it is not yet irrational. This does not mean the US market is about to collapse the same way as European peers, but convergence is fundamentally destabilising and tilts risk-reward to the downside.”
Indeed, the bank goes further, saying: “Higher broadband speeds do not confer better pricing power by default. We present further evidence from custom NFLX data, PlayStation, Japan and the Nordics that there is no impending exa-flood of data that will render Fixed Wireless Access unable to compete, even in the next 5 years – data growth is slowing. The industry has a major problem, the challenge of persuading users to pay for big pipes when the additional value that enlarging those pipes provides is not all that high.”
The bank’s advice to clients states “Underperform” on Charter Communications, “Neutral” on Comcast and has cut its advice on Altice to “Underperform”. Saying: Charter hiking capex and discounting is the only choice, but it is the last roll of the dice. Comcast has time and the balance sheet to wait it out. No near-term M&A makes ATUS’ risk-reward negative.