U.S. Cable TV Companies Get 86% of Net High Speed Additions in 1Q 2015

It might be premature to say for certain, but telcos might in the future have lost their status as the primary or dominant fixed network communications service providers, with an awful lot of potential regulatory implications.  

The reason for that potential situation is that in the strategic high speed access category, cable TV companies are taking market share at a very high rate. In the first quarter of 2015, for example, the largest U.S. cable TV companies, accounting for 85 percent of the total U.S. cable TV market, gained  for 86 percent of the net high speed account additions, a pattern that has been in place for many quarters, if not years.

The top cable companies added over 1,000,000 broadband subscribers in the first quarter of 2015.

The top telephone companies, on the other hand, added only about 160,000 net subscribers, despite AT&T and Verizon adding 573,000 subscribers on U-verse and FiOS.

The reason is that the leading telcos are bleeding digital subscriber line accounts. In the first quarter of  2015, the leading telcos lost a net 463,000 DSL subscribers.

The top cable companies now have a 60 percent share of the market for the first time since the second quarter of 2005, Leichtman Research Group says. In other words, despite having an early lead in the broadband market, the cable companies in recent years have been getting most of the net new accounts.

Should the trend continue, cable TV providers will, from this point forward, continue to grow their share, compared to telco suppliers, in part because it is uncertain whether Verizon Communications will compete as hard as AT&T and CenturyLink for higher speed accounts, as networks are upgraded to gigabit speeds.

And none of the telcos are likely to be able to match the cable TV companies in terms of ubiquity of gigabit access. Using the new DOCSIS 3.1 platform, most of the leading cable TV companies can upgrade from perhaps 100 Mbps up to 1,000 Mbps by swapping customer modems and some headend gear.

Cable TV companies will not have to upgrade the access networks. Telcos will have to switch to fiber to home architectures, in addition to making some upgrades of terminal equipment.  

Whether telco fixed network video entertainment services can grow fast enough to make a difference in unclear.

Broadband Internet	Subscribers at End of 1Q 2015	Net Adds in 1Q 2015
Cable Companies
Comcast	22,369,000	407,000
Time Warner	12,581,000	328,000
Charter	5,208,000	136,000
Cablevision	2,767,000	7,000
Suddenlink	1,183,600	34,500
Mediacom	1,041,000	28,000
WOW (WideOpenWest)	722,000	(5,800)
Cable ONE	496,579	8,125
Other Major Private Cable Companies*	6,595,000	60,000
Total Top Cable	52,963,179	1,002,825
Telephone Companies
AT&T	16,097,000	69,000
Verizon	9,246,000	41,000
CenturyLink	6,117,000	35,000
Frontier^	2,359,500	17,000
Windstream	1,132,400	800
FairPoint	318,378	(3,246)
Cincinnati Bell	272,700	2,800
Total Top Telephone Companies	35,542,978	162,354
Total Broadband	88,506,157	1,165,179

source:  Leichtman Research Group  

Vodafone Bemoans Low 4G Adoption

Nearly 66 percent of businesses and government executives surveyed by YouGov do not use fourth generation networks, said Vodafone, which sponsored the study.

Some 40 percent of respondents have no plans to adopt 4G at all.

It is the sort of survey that would be troubling, in the near term, for any firm that had just made heavy investments in new capacity to support services most of the potential customers say they do not use.

In the long term, the survey results will mean almost nothing. Few predictions are safer than predicting 4G usage will become commonplace and mainstream relatively quickly, as 4G-capable devices are purchased at higher rates, as tariffs and promotions are launched.

Uptake of fourth generation mobile services might be slower than Vodafone would prefer, but 4G adoption elsewhere in the world arguably has been very rapid. Some might argue, to the extent adoption is sluggish, that is a Vodafone issue, not a U.K. market issue.

Some might note that 4G adoption rates at other U.K. mobile operations have not proven especially problematic.

Major Ad Blocking Test Coming in Europe

Several European mobile operators plan to block advertising--not content--carried by major app providers. At first blush, that sounds like trouble. But blocking of ads, while allowing content access, appears to be a lawful practice.

In past instances where such ad blocking has been tried by linear TV distributors, content owners who rely on ad revenues have been able to pressure linear video distributors into limiting or halting such practices.

Whether that ultimately will prove to be lawful, over time, is the issue. It always is possible laws could be changed. But, for the moment, the issue is simply a power contest between ISPs and major ad-supported app providers.

The ad blocking is enabled by software that prevents most types of advertising from loading in web pages and apps, though it does not interfere with “in-feed” ads of the kind used by Facebook and Twitter.

Consumers have an indirect stake in the outcome, since nearly all content and software which can be used for no incremental cost (“free”) is subsidized by advertising. If the ability to advertise is prevented, the revenue model underpinning the content and app usage disappears.

Free Mobile Subscriber Growth Continues

At some point, logic suggests, Illiad’s Free Mobile has to experience a deceleration of the rate at which it adds net new subscribers. So far, that is not happening.

Illiad Free Mobile added 420,000 net new mobile subscribers  during the most-recent quarter, making 13 straight quarters where Free Mobile was the leader in net customer additions.

Mobile segment revenue grew 18.5 percent. It isn’t clear what profit margins in the mobile segment were, as Illiad did not report that figure.

Illiad also added 77,000 net new landline high speed access subscribers during the quarter, meaning Illiad gained 42 percent of all net new additions in the market.

Consolidated revenues grew seven percent to almost €1.1 billion, Illiad said.

Contracts Limit Degree of Innovation Video Distributors can Attempt

Programming contracts with linear video distributors normally include contract clauses calling for placement of ad-supported channels on the most-watched tiers. That matters for distributors who want to create “skinny bundles” featuring smaller numbers of channels that can be sold at less cost than the more-traditional bundles and plans.

Some wiggle room exists, but not too much. Agreements with programmers often allow distributors to experiment with some of their customers, said Mark Bowser, chief financial officer for Cox Communications.

Certain channels have to be included in packages taken by 85 percent of customers, he said.

Up to a point, specifically until the percentage of customers buying such smaller bundles reaches about 15 percent, distributors have leeway. After that, contracts would have to be renegotiated. Historically, programmers have insisted on the clauses stipulating their channels must be carried on the most-viewed tiers of service.

Push will have to come to shove, should the skinny bundles prove popular.

Can Reliance Jio Disrupt Indian Mobile Market?

Assuming failure is not an option, after an investment of about US$13 billion, what share of the Indian mobile market can Reliance Jio achieve, over perhaps a decade?

Bernstein Research has estimated Reliance Jio could gain about 10 percent share of subscribers, and three percent of revenue, over a decade. And it is possible Reliance Jio could emerge as the third-biggest Indian mobile service provider, Bernstein Research says.

Citing the experience of Hutchison Whampoa “3” entry into mobile markets in Australia, Austria, Ireland, Italy, and the UK with a similar 3G/data based strategy, Bernstein said Reliance Jio would aim to  disrupt the status quo by offering more voice and data at the same price as competitors.

As you would expect, that is going to ignite a marketing war, as competitors move to protect their existing market share by matching offers.

“We expect both Bharti and Vodafone to accelerate their data propositions in response,  deploying more 4G and matching Jio’s data pricing model while playing up their superior voice coverage and quality,” Bernstein analysts argue. “In the long-run consolidation should result in a better market structure for the remaining scale players: Bharti, Vodafone and Jio.”

“We are less optimistic regarding Idea Cellular’s ability to adapt and compete in this environment and advise investors to reduce their holdings,” Bernstein Research said.

What Options Does CenturyLink Have to Wring More Value Out of its Assets?

CenturyLink is in many ways a hybrid company, including a healthy base of rural telephone access assets, several access networks in metro areas of the western United States and then long haul and enterprise assets originally part of Qwest Communications.

CenturyLink is not alone. Windstream and Frontier Communications are some combination of rural telephone assets and business-focused assets.

One might argue that, in all three cases, revenue growth is driven, on a net basis, by the enterprise and small-to-medium business operations. What is not so clear is what any of the three firms can do to--or might want to do--to enable each of the constituent business segments to perform better.

Windstream has tried to wring more value out of its operations by spinning its access assets in a real estate investment trust, while separating out the operating businesses.

At CenturyLink, strategic services are growing, the legacy access business dwindling. Some creative ideas might be offered for what CenturyLink might do, some fanciful, perhaps.

The “easiest” move would be to undo the Qwest wide area network business from the local access business. The problem is that the former Qwest assets represent the growth. Even in the fixed networks segment, the rural assets arguably could be separated from the metro markets.

The issue is that value, in the business and metro markets segment of the access business, benefits from the former Qwest assets. Also, for the most part, the new gigabit high speed access business will make sense primarily in the metro markets segment of the business.

Though conceivable, it might be hard to cleave the rural assets cleanly from the geographically-isolated metro markets parts of the business, in part because negative revenue growth is virtually assured for such rural assets.

The split of former Windstream assets into a wholesale company and a retail company leasing access to the network assets is a model CenturyLink might also consider.

Some might propose more-fanciful options, such as selling some of the assets to third parties. The issue there would be how to cleanly do so.