Excellent article from today's Investor's Business Daily:
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Cable Numbers For Net Access Will Add Up
Cable firms to release figures showing big jump in subscribers to their fast Internet-access services
Date: 10/26/99
By Reinhardt Krause
Investor?s Business Daily
What?s behind the success of cable modem services Excite AtHome Corp. and Road Runner Inc.?
For starters, upgraded cable systems that whisk Web content ? as well as the usual TV fare ? into homes.
AtHome and Road Runner share a third of their subscriber revenue with cable system operators. The cable firms provide the broadband networks and thick coaxial wiring into homes that make Net access possible. Consumers pay about $40 monthly for these high-speed links.
As cable firms report third-quarter earnings, they?re all pointing to growth spurred by the Net. Some firms, though, are signing up cable modem users at a faster rate than their rivals.
"The ones that have led the market have been system operators that upgraded first, like Time Warner, MediaOne and Cox," said Michael Harris, president of market researcher Kinetic Strategies Inc. "AT&T had lagged, but they?re coming back into the race."
Time Warner Inc.?s cable arm added 55,000 high-speed data customers in the third quarter, analysts say. It now has about 241,000 cable modem subscribers ? the most in the industry.
Road Runner is a joint venture between Time Warner and MediaOne Group Inc. It tallied 420,000 customers as of Sept. 30, up 100,000 from the second quarter. Almost two-thirds of Road Runner?s customers come from Time Warner.
Time Warner has been selling Internet service in New York City since September.
"We haven?t felt New York?s impact in our numbers yet," said spokesman Mike Luftman.
MediaOne, which AT&T Corp. is buying, is slated to report earnings on Nov. 3. Analysts say it added 45,000 cable modem subscribers for the quarter, on top of the 140,000 it had.
AtHome has a wider reach than Road Runner because it has more partners. Road Runner?s service reaches 12.5 million U.S. homes, while AtHome?s services are available to 21 million homes in the U.S. and Canada.
Redwood City, Calif.-based AtHome said its subscribers rose to 840,000 in the third quarter, up 35% from June 30. Analysts expect it to have 1.1 million subscribers by year-end.
To reach that goal, AtHome needs a little help from its biggest shareholder, AT&T. AT&T, which bought cable provider Tele-Communications Inc. in February for $48 billion, is slated to report earnings on Thursday.
AT&T plans to spend billions to upgrade TCI?s network, which is older than other cable systems.
AT&T on Monday said it has 135,000 cable modem subscribers, up from 29,000 at year-end. Spokesman Mark Siegel says AT&T believes it will have close to 200,000 AtHome subscribers by year-end.
"AT&T is moving from poor performance to top performance," said Harris. "They?re on pace to hit their goal."
TCI had lagged AtHome?s other partners, including Cox Communications Inc., Comcast Corp. and Cablevision Systems Inc.
High-speed Internet links are availabble to about one-third of allU.S. homes passed by cable wires. Time Warner expects 85% of its customers to have cable Net access by year-end. Cox has upgraded two-thirds of its network for cable modems.
Atlanta-based Cox is set to report earnings Wednesday. It had 112,000 cable subscribers as of June 30. Merrill Lynch & Co. analyst Jessica Reif Cohen says Cox could have 175,000 AtHome subscribers by year-end.
Cable operators say 3.5% of modem-ready homes sign up for high-speed service once it?s available in their area. That?s not enough for cable firms to make a profit, but, over time, more consumers sign up.
In Orange County, Calif., analysts say, Cox has signed up 14% of modem-ready homes. Time Warner has signed up 17% of potential customers in Portland, Maine, and 10% in San Diego, says Bear, Stearns & Co.
Analysts say growth rates might double as more cable modems are sold retail, instead of being leased by cable firms.
Denver-based MediaOne in October expanded retail ties with Circuit City Stores Inc. AtHome last week said it will market cable access services at Good Guys Inc. and Office Depot Inc. stores. The modems are expected to cost $200 or so.
Some cable firms have been waiting for retail modem sales to heat up before making a marketing splash. Comcast has made cable modems a second priority, behind digital TV. Still, Comcast might end the year with 140,000 AtHome subscribers, up from 95,000 on June 30, analysts say.
The Strategis Group estimates that cable modem subscribers will reach 8.25 million by 2003, up from 420,000 in 1998.
Others say high-speed digital links from phone companies, a technology called DSL, will give cable modems strong competition. And some analysts argue that more media-rich Web content must arrive before consumers buy high-speed links.
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