Is Broadband Too Cheap?
The tide continues to shift in the pay TV market. Cable operators that have watched their stocks get pounded after warning their third quarter earnings would reflect a predicted another 1 million-plus pay-TV subscribers cutting the cord in the third quarter. But Jefferies analyst Mike McCormack has crunched some numbers and determined that cable operators might actually be able to survive this.
While Comcast has hiked broadband-only rates to around $65 per month and Charter Communications has also hiked their entry-level 100Mbps price to $65 per month, the analysts are saying this isn’t enough.
“Cable companies are likely to raise stand-alone broadband pricing to combat the EBITDA declines from downsizing,” said McCormack in a report. “This practice is already evident and justified given the lack of a bundling discount. Based on our analysis, we estimate Comcast would need to raise stand-alone pricing to roughly $80 in order to break even from a profitability perspective.”
“MSOs would need to raise standalone broadband pricing to $80, or more, in order to break even from a contribution perspective,” UBS analyst John Hodulik said.
The bad news for us (the consumer) is that Cable companies can probably get away with it, the analyst noted. “We find that this level of pricing (non-promo) exists in some markets already, though pricing will vary,” Hodulik explained.
“Cable appears to be the winner, particularly given broadband dominance and competitive positioning, which should translate into the pricing power needed to mitigate video losses,” Hodulik added. “Under similar assumptions, we find that Charter would see modestly better EBITDA and cash flow accretion than Comcast, though results are fairly similar. We also see Telco benefiting where fiber is deployed in-region.”