While cord-cutting has gotten a lot of media attention, it actually hasn't hurt the bottom line of traditional cable providers. Those companies -- led by Charter (NASDAQ:CHTR) and Comcast (NASDAQ:CMCSA) -- have lost pay television customers, but they have more than made up for that by adding broadband users.
In fact, when you combine 2016 and 2017, the major pay-television companies lost about 2.5 million television customers while they gained 4.8 million broadband subscribers. That's in line with trends since cord-cutting began in 2013 (though broadband gains were even higher in the first few years).
Now, however, something has changed. Big cable lost 2.87 million television customers in 2018 and added only 2.4 million broadband users. Comcast and Charter, it should be noted, still came out ahead. The two cable giants added about 2.6 million broadband customers (split nearly equally between the two) -- more than the total number gained by the industry -- but lost only 371,000 (Comcast) and 244,000 (Charter) cable customers, according to data from Leichtman Research Group.
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Here's what's happening
In most cases, people who cut the cord are not giving up on television entirely. They're just switching from traditional cable to streaming services. That means they not only need broadband service, they probably also want the best broadband possible.
Sometimes there's no choice, since about half of Americans live in markets served by only one broadband provider. For those who live in a market with multiple providers, the choice has largely been to opt for the faster, higher-quality service provided by cable companies compared with DSL from phone company providers.
The phone companies are losing massive amounts of internet customers, meaning that existing users aren't switching. But AT&T lost 18,000 internet customers in 2018 while Verizon gained just 2,000. The big broadband losers -- which almost certainly saw customers leave for Comcast, Charter, and other cable providers -- were CenturyLink (down 262,000) and Frontier (down 203,000).
What does this mean for the industry?
The U.S. has roughly 127.5 million households, and 98.2 million of them have a broadband connection, according to LRG. That leaves about 29 million as the remaining addressable market for broadband providers. You have to assume that some of those are filled with folks who just don't want an internet connection (or are fine using their phones). There's also a percentage of that number (about 10 million homes) that are in areas not served by any broadband provider.
Cord-cutting has been accelerating, and the continued addition of new streaming choices means that trend should continue. Those cord-cutters will need broadband, but chances are they already have it or can't get it.
Of the 19 million or so homes that could add internet, maybe most of them will as demographics change. Still, it's no longer a given that broadband gains will make up for cable losses.
This may not be a major problem for Comcast and Charter, as they've shown they can gain share over their phone company rivals. For those phone companies, however, the losses in cable aren't coming back and broadband can't cover it.
That's a trend that should continue. Cable companies arguably would rather trade a pay-TV customer for a broadband one because they have to pay outside companies for the television content. Still, even as they grab share from rivals, Comcast and Charter may hit a point where losses outstrip gains.
That day isn't here yet, but the telcos have only 33 million remaining internet customers while big cable has about double that. At some point, there simply won't be enough new customers or ones willing to switch to keep Charter and Comcast growing even while cord-cutting accelerates.