Internet Broadband subscribers are being peeled away by cable television and there’s really not much the phone companies can do about it, analysts say. That could move a lot of money around on Wall Street.
According to Leichtman Research Group, cable companies added 887,000 high-speed Internet subscribers in the 2nd quarter of 2008 – about twice the number of new subscribers added in the same quarter of 2007. The firm says that 76% of new subscribers went to cable companies – a telling sign. According to Leichtman, cable companies now have 35.3 million broadband customers, compared with 29.7 million at the phone companies. AT&T remains the country's largest Internet service provider, with 14.7 million customers, just ahead of Comcast Corp. with 14.4 million.
Obviously, that’s going to draw the attention of investors, much like the Black Widow in the movie The Natural, after Roy Hobbs struck out The Whammer on three pitches. Sure, a slowing economy has lots to do with less people signing up for phone company Internet broadband services. And yes, the market, at least here in the U.S., has become saturated. And, as Leichtman’s research points out, the two largest telecom providers, Verizon and AT&T, opted to emphasize pricier and more comprehensive over entry level DSL. But in a tough economy with consumers looking to strip down expenses, that wasn’t exactly a bright idea.
Other analysts have come to the conclusion that cable television will wind up having a monopoly on broadband, phone, and television service, knocking telecom firms off the same perch. Writes Craig Moffet, a telecom analyst at Bernstein Research:
“In the harsh glare of second quarter seasonality, the telcos’ wired businesses suddenly look not only like they are weakening… they look like they are positively collapsing. Access line losses have accelerated to an almost 10% annual rate at AT&T, and to an almost 12% rate at Verizon. Broadband growth has virtually stopped, with DSL customers abandoning the TelCos for cable’s higher speeds and bundled prices.”
Cable is well positioned to take advantage, he writes. Ironically, the biggest business monopoly since the railroads – telephone service via Ma Bell – is giving way to another potential monopoly in internet, phone and TV connectivity via the cable companies.
“The telecommunications market is, after all, a true natural monopoly market – that is, the capital required to build a network is simply too great to support more than one operator (just like the railroad business before it). And more than ever, it appears that cable is poised to be that one network.”
Consequently, cable stock plays like Comcast or Time Warner suddenly become much hotter prospects to investors. There’s a reason the Black Widow turned her attention to Roy Hobbs – that’s where the money and power were heading (of course, if you saw the movie, you know that she wound up shooting Hobbs).
So it goes with cable media properties. By following the subscribers, you’re following the money. And its going away from the telecoms and toward cable.