Cable television's cord-cutting headwinds have been blowing for some time now. But cable companies' growing broadband businesses -- which are a key driver of this cord-cutting movement -- help offset customer attrition. Now, broadband itself is running into an alarming headwind.
That's one of the key takeaways from the most recent quarterly updates posted by cable giants Comcast (CMCSA +0.60%) and Charter Communications (CHTR +0.11%). The former lost high-speed internet customers during the final quarter of 2022, and while the latter added broadband subscribers, that growth is entirely attributable to bundling broadband with the company's budding mobile phone service. Without that help, Charter's broadband business would have likely continued running into the same wall it hit in the middle of last year.
Shareholders of either outfit should be concerned.
This cash wellspring is quickly drying up
It would be easy to overlook. Charter's Spectrum and Comcast's Xfinity broadband businesses both drove revenue growth last quarter, after all, and both companies have plenty of other things going on.
Nevertheless, Comcast lost 26,000 high-speed internet subscribers in the fourth quarter of 2022, capping off three rather poor quarters. Charter added 105,000 broadband customers during the last quarter of last year, slightly snapping back from the second quarter's net loss and the third quarter's so-so additions of 75,000 customers. Had it not been for the net addition of 615,000 Spectrum Mobile phone customers who pay for a mobility/broadband bundle, it's arguable Charter would have also suffered customer losses. And even then, the addition of 105,000 new high-speed internet users isn't exactly a thrilling development.
Data source: Comcast Corp., Charter Communications Inc. Chart by author. Customer data is in thousands.
And don't look for the sort of growth investors saw during the height of the pandemic.
The United States' broadband market is pretty well saturated. The Internet & Television Association estimates 84% of the nation's homes already have access to broadband connectivity. While that theoretically leaves another 16% up for grabs, if the remainder of consumers were interested in high-speed internet they'd likely have it already. In the meantime, T-Mobile US and Verizon Communications are making inroads with their fixed wireless access solution that delivers broadband service without the need for a physical line running all the way to a home. T-Mobile is now serving more than 2 million fixed wireless access customers, and Verizon serves over 1.4 million of its own such subscribers.
Simply put, Charter and Comcast are finally facing a new kind of competition not constrained by a lack of line infrastructure.
More clarity is needed, given broadband's importance
It matters for the obvious reason. That is, broadband is big business for cable companies.
High-speed internet accounts for roughly 40% of Charter's top line. For Comcast, that figure is a more modest 20%, but it's an important 20%. The company's cable and internet division is Comcast's biggest profit producer. And broadband itself is most likely the most profitable venture of all the operations under this umbrella. If it starts to crumble it could take an exaggerated toll on Comcast's bottom line. Ditto for Charter.
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Kudos to both organizations for doing something -- anything -- to push back against the broadband market's slowdown. As was noted, Charter's wading into mobility waters with Spectrum Mobile. Comcast's Xfinity is doing the same, adding 365,000 wireless customers last quarter to bring its mobile headcount up to 5.3 million. Comcast is also parent to NBCUniversal, which is the combination of television network NBC and movie studio Universal. This arm is also parent to up-and-coming streaming service Peacock, which now boasts more than 20 million paying members.
Still, none of these efforts are necessarily enough to offset the sudden weakening of broadband's growth. Peacock, operating as a stand-alone entity, still lost $2.5 billion last year, in fact, and it remains to be seen if either company will continue growing the mobile business at their recent growth rates; the mobility market is rather saturated, too.
Comcast and Charter stocks aren't outright unownable. But the broadband slowdown certainly doesn't bolster the bullish case. Investors who are on the fence about either stock may want to look elsewhere until it's clear both companies have a sound plan to offset this growing headwind.
