By Michael Learmonth
NEW YORK, Nov 5 (Reuters) - The cable television industry
has found a way to grow again, but it has nothing to do with
ESPN, HBO, or even television.
As increased programming costs and competition from
satellite services eat into profits, cable companies have been
saved by high demand for faster Internet connections. All the
major companies reported dramatic increases in high-speed data
subscribers in recent weeks.
Comcast Corp. (NASDAQ:CMCSA), the nation's largest cable
operator, saw its high-speed data subscribers swell 49 percent
in the past year, and it had 473,000 net additional subscribers
in the third quarter. Time Warner Inc. (NYSE:TWX)-owned Time
Warner Cable data subscribers grew 37 percent over the past
year. Cox Communications (NYSE:COX) grew 45 percent and Charter
Communications (NASDAQ:CHTR), 60 percent.
"The fact that the video business has proven so difficult
for them makes data even more important," said John Hill, cable
analyst at SoundView Technology Group.
While data subscribers are still a small percentage of the
industry's overall customer base, Hill estimates that anywhere
from half to two-thirds of the industry's operating cash flow
growth is coming from cable modems.
"In revenue terms it doesn't rival what they get from their
core television operations, but it's becoming very
significant," said Joe Lazlo, broadband analyst at Jupiter
Communications.
While high speed Internet, or broadband, penetration rates
have soared over the past year -- roughly 30 percent of online
households, and 20 percent of households overall, now have
broadband -- for the meantime there appear to be enough new
customers to go around.
The broadband market grew 46 percent from last year,
according to a Kaufman Bros. Equity Research estimate, buoying
phone companies that sell broadband over traditional phone
lines, such as SBC Communications (NYSE:SBC) and Verizon, (NYSE:VZ)
as well as cable operators. SBC and Time Warner are vying to
become the number two broadband provider behind cable giant
Comcast.
Despite stiff competition on price from the phone
companies, some of which pushed prices below $30 a month, cable
executives have taken heart that cable's marketshare hasn't
budged.
Cable stayed steady at 65 percent, compared to 35 percent
for the phone companies' DSL, or digital subscriber line,
services, according to Kaufman media analyst Mark May. Hampered
by technical hurdles, satellite broadcasters have relied on
partnerships with telephone companies to gain a foothold in the
broadband market.
But as broadband becomes a mass-market commodity, cable is
bracing for a more price-sensitive consumer. Many are beginning
to discuss tiered offerings that would allow subscribers to
choose a slower connection speed for a discounted price.
Growth at discount ISPs such as United Online demonstrates
that price is a deciding factor for a significant segment of
the market.
"Once you get to 30 percent of Internet households you're
getting into the mass market and its going to take a price cut
to penetrate those markets," May said.
For now, the bulk of new broadband subscribers are coming
from dial-up ISPs. Kaufman estimates that the top three -- AOL,
MSN and Earthlink -- lost more than a million subscribers in
the third quarter alone, their fourth straight quarter of
loses.
"I don't expect that channel to dry up anytime soon," May
said.
(editing by Michael Miller; Reuters Messaging:
michael.learmonth.reuters.com@reuters.net; email
Michael.Learmonth@reuters.com; Tel: 1 646 223 6194)) |
