The cord-cutting movement has certainly proven frustrating for cable television companies. Ditto for their shareholders. There's been some solace in the fact, however, that growth of cable companies' broadband businesses has offset this sweeping attrition of their cable TV customers.
Now, broadband's growth is close to hitting a wall. That's the takeaway from a study recently published by telco market research outfit Leichtman Research Group. The United States' high-speed internet market is nearing -- or perhaps even at -- the point of saturation. From this point forward, the best that the industry's key players can hope for is simply swapping existing customers with one another.
What does this mean for investors in the companies? Let's take a look.
Saturation is a problem
As of November, 90% of U.S. households are able to surf the web from home. And of that 90%, 99% of them enjoy access to high-speed internet connections. But before you think the numbers mean 10% of the potential market has yet to be tapped, know that more than half of the nation's non-internet subscribers don't own a computer.
Connect the dots. The U.S. broadband market is about as big as it's ever going to get, save for population growth. And to this end, know that the U.S. Census Bureau reports population growth of less than 1% for 2021, as well as for 2022. This, in turn, means there will be fewer people having babies in the years ahead.
Leichtman's findings aren't tough to believe either, even if they are based on a relatively small sampling of just under 2,000 people. Comcast's (CMCSA 0.02%) and Charter Communications' (CHTR 1.56%) broadband subscriber head count growth has clearly been slowing down since early 2022.
Data source: Comcast and Charter Communications. Chart by author. QOQ = Quarter over quarter, or sequential change.
In that these two companies combined account for more than half of the entire country's broadband market, their fate is a proxy for the rest of the nation's broadband service providers. In this same vein, although not shown on the chart, Altice USA has actually seen its total tally of broadband customers shrink since the end of last year.
And it's not just cable's broadband customers, either. AT&T as well as Lumen also lost fixed-line broadband customers during the third quarter of 2022, according to Leichtman, and Verizon Communications' fixed-line broadband customer base only grew by a scant 35,000. These tepid results mark a similar contraction in the number of consumers paying for high-speed internet service provided by companies other than cable television outfits.
Data source: Leichtman Research Group. Chart by author.
While they themselves aren't immune to the impact of market saturation on their potential growth, a couple of wireless phone companies are contributing to the industry's saturation and subsequent customer attrition of cable's broadband business.
T-Mobile now serves about 2.1 million broadband customers who don't need any wires running to or from their homes. Verizon has about 1 million such subscribers. The two companies suggest they could collectively be serving between 11 million and 13 million of these fixed-wireless customers before the end of 2025.
This growth, of course, only exacerbates the saturation/competition problem for cable companies like Spectrum's parent Charter and Xfinity's parent Comcast.
Time for Charter and Comcast to answer tough questions
It's not necessarily the end of the world for all traditional cable names. Comcast is also parent to film and television studio arm NBCUniversal, streaming platform Peacock, and the U.K.'s Sky. The company's also growing a mobile phone business at a surprisingly brisk clip, boasting just under 5 million wireless customers as of the end of 2022's third quarter. In the meantime, broadband remains a cash cow for most cable television broadband providers.
By and large, though, it's more of a problem for these players than not. High-speed internet is Comcast's single biggest source of revenue, accounting for 20% of the company's top line. The matter is even more extreme for Charter. A little more than 40% of its top line comes from broadband versus a more modest 32% from cable television.
All this means that high-speed internet service providers will be forced to figure out how to navigate the new, saturated environment -- which is likely to include a bit of consideration regarding cost management. Already on the defensive due to shrinking cable TV businesses, traditional cable television companies face the brunt of this challenge. Neither Charter nor Comcast will be particularly compelling investments until and unless the two organizations can clarify their response to the broadband industry's brewing headwinds.
