Cable gains ground while IPTV stalls

Strong revenue and earnings growth in the second quarter suggests bright near-term prospects for cable companies in their war against the Bells, Merrill Lynch wrote in a research note released today.

“While [second-quarter] cable telephony subscriber results were only in line, the cumulative impact of strong growth and the knock-on benefits of bundling are showing through,” Merrill Lynch wrote. “Customers seem happy to plough savings from cheaper phone service into new digital TV services, driving high cable TV [average revenue per user (ARPU)] growth.”

On average, U.S. cable companies gained about 1.2 points in their telephony subscriber penetration rates in the second quarter while reporting 12% year-over-year revenue growth. Aggregate cable TV ARPU rose from 7% to 9% in the second quarter, driven by rate hikes and sales of digital set-top boxes.

The top seven U.S. cable operators now have 62 million telephony-ready homes, or 66% of the number of homes passed by their networks, Merrill Lynch estimated, and in aggregate, 60% of U.S. homes could get phone service from their cable company.

“With AT&T effectively delaying Project Lightspeed--awaiting [high-definition television] capability--cable’s trajectory looks very positive,” Merrill Lynch wrote.

Cable modem subscriber growth was also stronger than expected in the second quarter, reaching nearly 25% of the homes passed by major operators.

Meanwhile, access line loss among Bell companies began shifting from secondary lines to primary lines in the second quarter, Merrill Lynch wrote. Verizon Communications’ residential lines were down 9.5% from a year earlier, AT&T’s were down nearly 8%, and Qwest Communications’ were down nearly 6%. Business line loss swelled from an average of 2.6% in the first quarter to 3.1% in the second quarter.

Though Bell company wireline revenue was down nearly 4% in the second quarter from a year earlier, cost-cutting efforts allowed the Bells to report earnings before interest, taxes, depreciation and amortization margins of 30.5%.

“In general, [Bell] margin performance was better than expected, reflecting successful cost-cutting and merger integration,” Merrill Lynch wrote.

Merrill Lynch’s note comes the same month that an analysis by CableLabs, a cable industry research consortium, suggested it might be cheaper for cable operators to deploy fiber-to-the-home than to upgrade their existing networks as necessary to compete against the Bell companies in the long term. When the Wall Street Journal reported CableLabs’ conclusions earlier this month, however, major cable company executives said they disagreed with that assertion.

Related Articles

InFocus: How to compete against DBS and cable

Ensuring IPTV quality

Cable's IP push may await 2008