Entries in 3Q11 Connections (10)


DirecTV Extends Lead Over DISH in DBS Market Share Battle

3Q11 Connections: DBS Subscribers

As has been the trend in recent quarters, the number of DBS connections continued to grow in the third quarter, but DirecTV was the beneficiary,  while DISH Networks continued to lose customers. Total DBS video connections numbered more than 33.7m at the end of September, up 216k from 2Q11. YoY DBS customers have grown by nearly 500k—but DirecTV has added a total of 826k while DISH’s total has fallen by 344k, or 2.4%. DirecTV was serving nearly 19.8m at the end of the quarter while DISH’s sub base slipped below 14m. Cable provider Comcast remained the largest video service provider in the quarter, with 22.36m customers, but given recent trends, could be displaced by DirecTV some time next year. DISH comes in fourth, followed by Time Warner Cable with 12.1m.

Fewer and fewer ILECs are breaking out their DBS subscriber counts, and some, like Verizon and AT&T are no longer actively marketing the service as they promote their own video services. At last count, CenturyLink was serving approximately 1.7m DBS customers and Frontier Communications had between 400k-500k. Windstream also served about 450k at the end of the third quarter, up 3.6% YoY.


Video Subs Fall Across the Board for Cablecos

3Q11 Connections: CATV Video Subs and Homes Passed

In 3Q11, publicly traded cable companies across the board reported losses of television customers, giving up ground to the ILECs, and potentially losing subs to OTT providers, as consumers are getting their video fix elsewhere. Collectively, the cablecos in our sample shed 422k video subs in the quarter, and YoY they have trimmed 2.5% off of their video customer base.

The cable giants have the most video subs to lose, and it follows that they took the biggest hit in 3Q11—Comcast (Nasdaq:CMCSA) and Time Warner (NYSE:TWC) lost 165k and 126k television subs, respectively.  Charter (Nasdaq:CHTR) actually closed on a pair of acquisitions in 3Q11 that netted it around 25k video subs, but it still reported a net loss of 42k video customers for the quarter.

Knology (Nasdaq:KNOL), Suddenlink and Cablevision (NYSE:CVC) were the only cablecos that posted video gains YoY, but in all cases the growth was not organic. Knology picked video subs through its acquisition of CoBridge’s cable systems in 2Q11, and Suddenlink added 82k basic cable subs with its 2Q11 purchase of NPG Cable. Meanwhile, Cablevision’s YoY customer increase was fueled by its 4Q10 acquisition of systems from Bresnan Cable.

With the decline in video subs came a corresponding drop in penetration of homes passed. The publicly traded cablecos only penetrated 43.5% of home passed with basic video services in 3Q11, compared to 45.3% as of 3Q10. At the high end, Alaskan cable provider GCI reported penetration of 61.1% while Charter’s penetration continued to lag behind the competition with 36.6% penetration in 3Q11.


More Than 80% of Basic Cable Subs Take Broadband Service Too

3Q11 Connections: CATV Penetration of Basic Subs and Homes Passed

Cable providers may be losing video connections, much like ILECs are losing their legacy voice lines, but they are steadily improving their penetration of voice and broadband services. At the end of the day, virtually all providers—cable and ILEC—are offering triple-play bundles and providing customers with monthly net savings to buy all services. So where historically the cable provider and the ILEC would share the customers in a given market, today it’s a full-blown market share war: If I go with the cable provider, I will take my voice and broadband services from it…if I go with the ILEC, I’ll be looking to buy video and broadband services from it. The jury is still out on which sector will come out on top; it’s no doubt more likely that certain companies within both sectors will come out on top within their respective markets.

For the time being however, we continue to measure the cable industry’s relative progress in terms of penetration of both basic video subscribers as well as of homes passed. (In the long run we should likely begin to measure ILEC penetration levels based on homes passed as well, rather than on access lines.)

In the third quarter, the public cable companies were providing voice service to 44% of basic video subscribers, up from 39.5% at the end of last year. Impressively, 81.7% of basic cable connections were also taking broadband services from their cable provider, up 570 basis points this year-to-date.

Looking at penetration based on homes passed is more telling, however. Here, cable operators were providing broadband service to 35.5% of homes passed and voice penetration of homes passed was just more than 19%.

Cablevision reported the most impressive penetration stats for both voice and broadband (given that both GCI and Knology also have ILEC operations that skew their voice subscriber stats).  More than 90% of Cablevision’s basic subscribers were also taking voice and broadband services at the end of the third quarter—which translates to more than half of the homes passed.


ILEC Broadband Penetration of Voice Lines at 42.3%

3Q11 Connections: ILEC Video and Broadband Penetration of Voice Lines

With access lines still falling and broadband connections growing, the broadband penetration of voice lines continues to expand at a fairly rapid clip. Truth is, we’ll probably need to reverse these measures at some point—that is, measure voice line penetration of broadband connections. But for now, we’ll stick with the traditional view.

At the end of the third quarter, the public ILECs posted average broadband penetration of voice lines of 42.3%, up 270 basis points versus the end of last year, and up 100 basis points in the quarter. The median was 37.1%, up from 35.2% at year end. At the high end, Shenandoah Telecom’s broadband penetration far exceeded 100% due to its cable acquisitions over the past year. In fact, due to the altered business mix at Shentel, we’ll be reclassifying the company as a cable operator in future quarters.

SureWest’s 57.4% penetration was the second strongest in the sample as the company’s aggressive investment in fiber over the past several  years has begun to pay off. Also coming in above 50% were Verizon (thanks to FiOS) at 53.8%, Windstream at 51.5% and Warwick Valley Telephone at 51.4%. Verizon’s penetration rate jumped markedly following its sale of 4.8m access lines to Frontier last year. On a positive note, not one company saw declines in its broadband penetration in the quarter, although given that access line counts fell for all but one company (Consolidated Communications), those that held relatively flat in terms of penetration may actually be losing broadband connections.

On the video side of the equation, the overall average penetration of voice lines was 28%, but that was skewed by Shentel’s aforementioned cable acquisitions. The median video penetration level was 13.4% at the end of the third quarter, up from 12.7% at the end of June. Four companies in the sample—Alaska Comm., FairPoint, Hawaiian Telcom and TDS—do not yet offer video services.



CATV Voice and Internet Subs Continue to Rise

3Q11 Connections: CATV Voice and Broadband Connections

Amid continuing television subscriber losses in 3Q11, the cablecos continued to add to their voice and broadband customer bases in the quarter. Overall, the CATV providers in our sample added 2.5m broadband subs and 2.2m voice subs YoY in 3Q11, annual increases of 7.1% and 12.2%.

The voice gain however is somewhat skewed due to a reporting change by Cablevision (NYSE:CVC) that resulted in a misleading annual gain of 855k voice subs in 3Q11. Prior to 1Q11, Cablevision had broken out VoIP connections separately, but it now reports VoIP subs in its overall voice totals. Adjusting for Cablevision, the cablecos still grew voice subs at a strong 8.5% clip over the past year.

Suddenlink and Washington Post (NYSE:WPO) reported the best annual voice connection growth on a percentage basis in 3Q11, as both increased their voice subs over 28%. The gains at Suddenlink were mostly driven by its 2Q11 acquisition of NPG Digital Phone. As has been the case for the past six quarters, Comcast (Nasdaq:CMCSA) reported the lion’s share of the quarterly voice gains in 3Q11, accounting for 133k of the sample’s 217k net voice adds.

A majority of the broadband gains were also reported by the larger cablecos, with Time Warner (NYSE:TWC) and Comcast fetching 66% of the 550k subscriber adds. Elsewhere, Suddenlink and Knology (Nasdaq:KNOL) picked up subs from acquisitions driving their sample best 21% YoY broadband gains. Perhaps the strongest organic broadband growth was turned in by Charter (Nasdaq:CHTR) which added 79k broadband subs QoQ in 3Q11 as it continues to market and lead with its Internet services, branding itself more as an ISP and less as a traditional cableco.