Most of the big players in cable have other significant assets besides their pay-TV and internet-service networks. Comcast, for example, owns NBC, numerous cable channels, a thriving film division, and the Universal Studios theme parks. AT&T has its mobile phone business, its legacy wireline network, and the Time Warner media portfolio which includes HBO.

Then there's Charter Communications (NASDAQ:CHTR), which essentially only has its cable and internet customers, plus a relatively tiny mobile phone business (less than 1 million customers). That's a challenging portfolio to operate with during a period when cord-cutting has accelerated while the rate at which people are adding broadband has slowed down -- likely due to the market being close to fully penetrated.

A person points a remote control at a television.

More consumers are cutting the cord with cable. Image source: Getty Images.

Where does Charter stand?

In the second quarter, the cord-cutting trend exploded -- a net 1.53 million cable customers dropped their service, up from 420,000 in Q2 2018, according to data from Leichtman Research Group (LRG).

Charter has so far weathered the storm relatively well. It lost 141,000 cable customers in Q2, and just reported a drop of 75,000 in Q3. The company has more than made up for those cable losses with gains in broadband subscribers, and noted that it has added 1.1 million net new customer relationships during the past 12 months.

In his remarks accompanying the Q3 earnings release, CEO Tom Rutledge tried to put a positive spin on the future.

"Our strategy of offering high-quality products with good service at attractive prices is working and continues to produce strong customer relationship growth," he said. "In the third quarter, customer relationship growth continued to accelerate and our operating strategy keeps us well-positioned to take advantage of the growth opportunity in front of Charter."

That sounds nice, but it ignores the larger trends. Charter does not offer attractive prices for cable service compared to the various streaming options consumers now have. Cable lost 2.87 million customers in 2018, and has dropped roughly the same amount in just the first two quarters of 2019, according to LRG.

A negative outlook for cable

Cord-cutting has accelerated, and there's no reason to think that it won't continue to speed up. Consumers have options to get cable-like services for less money, and younger people who have grown up without traditional cable packages, or who have found other ways to access the content they enjoy, may never opt into that expense.

Charter's ability to keep compensating for its cable subscription declines by adding broadband customers may not last, as the overall broadband growth rate is slowing and plateauing. In 2017, top providers added 2.1 million broadband customers, according to LRG. That number inched up to 2.4 million in 2018, and is on a similar pace for 2019.

At this point, 100 million U.S. homes already have broadband. That's more than ever had cable, and it may be near the peak for the industry. It's not total market saturation, but it's getting close.

That leaves Charter with back where it started in terms of potential sources of growth, with its cable offering -- a service that fewer customers want. It's hard to know how far the market for traditional pay-television services will fall before the curve flattens out, but the eventual "new normal" is likely to be dramatically below current levels.

It's a plausible scenario that five years from now, Charter may have lost half of its roughly 16 million cable customers, but only added a small fraction of that number to its current 26 million or so broadband subscribers. The numbers could be much worse of somewhat better -- but the general trends are moving in those directions.

Based on all that, one must conclude that Charter is not a growth company. It has one healthy service (broadband) with slowing growth, and a second service (cable) that is in major decline. That combination won't put it out of business, but will certainly make its stock less attractive to investors.