While cord-cutting has slowly shrunk the subscription base for pay television, the broadband industry has shown explosive growth led by big cable.
In 2015, according to numbers from Leichtman Research Group (LRG), the various Internet service providers gained 3.1 million customers, the biggest gains since 2010. That's a stark difference, and perhaps a direct byproduct of the slow bleed happening in pay TV, which lost just over 383,000 subscribers in 2015, LRG reported.
The numbers make sense because not only do cord-cutters -- people dropping cable in favor of streaming services -- need quality broadband, but so do the so-called cord-nevers. These are younger customers, millennials, setting up their first homes without cable, but there's no cord to cut because they were never subscribers.
Those two types of customers have made broadband a booming business and it's the major cable providers -- Comcast (NASDAQ:CMCSA), Time Warner Cable (UNKNOWN:TWC.DL), and Charter (NASDAQ:CHTR) -- along with the smaller Frontier Communications (NASDAQ:FTR) that are the big winners.
"The number of broadband subscribers in the U.S. continues to increase, with the top broadband providers adding more than 6.1 million net broadband subscribers over the past two years, and cable companies accounting for 97% of these net adds," wrote LRG President Bruce Leichtman.
A look at the numbers
The big three cable companies effectively tread water in cable in 2015, with Comcast losing 36,000 subscribers while Time Warner Cable gained 43,000 and Charter added 11,000 paying customers. Those results were encouraging, given all the cord-cutting fears, but they pale next to the explosive growth all three saw in broadband, where Comcast added 1.36 million subscribers, TWC gained just over 1 million, and Charter signed up just about 500,000.
Those gains were similar on a proportional basis for nearly all the cable companies LRG tracked, but the numbers were very different for the telephone company providers. Aside from Frontier, which added over 100,000 users to its 2.44 million customers, the telcos generally did poorly, or at least much less well.
Why did telcos fare so poorly?
Whether people are cutting the cord or never had one in the first place, using streaming services in place of pay TV requires a quality broadband connection. That explains why the cable companies, which have cable-based broadband services, which are generally considered to be the fastest home option, edge out telcos, which largely use DSL networks.
Speedtest.net explained the difference between the two options in a 2015 Web post:
Generally cable broadband is faster, while DSL, which stands for digital subscriber line, is cheaper, especially at the slowest speeds. If all you want to do with your home Internet connection is visit a few websites and check email, then a traditional, slow DSL is probably fine technology.
Offering DSL only in some of their markets has clearly hurt AT&T and Verizon, but both companies have been greatly expanding their fiber networks, which will ultimately put them on equal footing with their cable rivals, if not give them an advantage.
What does this all mean?
At some point the explosive growth will slow down as broadband saturates the entire United States, but unlike with pay TV, there is no reason to expect any shrinking in the Internet market. In fact, the prevalence of streaming offerings -- even services from pay-TV providers -- should push the demand for high-quality, high-speed Internet even higher. That should create revenue growth opportunities for all the major players even after the user base begins to stabilize.
Verizon and AT&T clearly need to continue investing in their networks if they hope to join the boom, but big cable looks poised to offset any pay-TV losses with continued broadband gains for the foreseeable future.
Daniel Kline has no position in any stocks mentioned. He does not really understand Kanye West. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.