Analysts: Telco video to outpace cable telephony in 2009

Telco video growth should outpace cable telephony growth this year for the first time ever, according to research analysis and investment firm Stifel Nicolaus, which predicts AT&T and Verizon will together report more video net adds in 2009 than the number of voice net adds gained collectively by their top four cable rivals.

“We view telcos as the likely market-share winners over the course of the next couple of years, as cable's core video product will continue to be stripped away by competitive telco offerings,” Stifel Nicolaus analysts wrote in a research note today. “If U-verse technology continues to improve (through advancements in pair-bonding and compression technology developments), we believe the market share gains could be even more impressive for the telco operators.”

Last year, as AT&T and Verizon added 1.8 million video customers, cable operators added nearly 4.8 million voice subscribers. But cable’s voice market share growth has been slowing for several quarters, falling from 1.2 million net new subscribers in last year’s third quarter to 870,000 in the fourth. And although cable operators have blamed wireless substitution for much of that decline, post-paid wireless net adds also slowed in the fourth quarter, Stifel Nicolaus said. And as a group, the cablecos lost 1.2 million basic video subscribers last year.

Telcos continue to lose access lines, as well – almost 3 million in the fourth quarter and more than 12 million last year, including business and residential lines. But Stifel Nicolaus analysts believe most of last year’s loss (about 60%) was due to a mix of non-cable competition (from competitive carriers and other VoIP providers such as Skype) as well as wireless substitution.

“We believe this wireless substitution effect has been, and will continue to [be], slow over the coming quarters, as penetration levels are beginning to reach a saturation point,” the analysts wrote. “However, we note that telcos likely don't mind wireless substitution much at all, given the higher [average revenue per user] for their wireless subscriber base.”

Cable operators have so far benefitted from a wider footprint of competitive services, but that lead will begin to shrink over the next few years. While major cable operators are now offering voice to nearly 90 million households, the two largest telcos, selling video to about 29 million homes today, plan to reach more than 50 million before 2012.