This is part 4 of my deep dive into cable threats (sponsored by Tegus). This part will dive into one of the buzziest companies threatening the broadband market: Starlink. If you’re looking for background on what this series is and why I’m doing it, please
I have to say though, even though I think I agree with most everything you've said, I'm still skeptical of the medium and long-term risk/reward for investing in cable. It just feels like there's competitive threats on multiple sides and many ways to lose, even if each individual threat has low-odds of unseating cable in any given market. Even though much of the competition is on the margin, growth happens on the margin. As a relative noob, this is how I'd summarize what I'm hearing (again, I'm a noob, so please correct me if anything I'm saying is off base):
1) Fiber, admittedly, is a superior product at a lower cost than cable, but cable is good enough to meet customer's needs in all but the most explosive growth in bandwidth demand scenarios and so the natural end state of market share in competitive markets will be a 50/50 split between cable and fiber, because inertia.
2) At the same time, cable is insulated from the competitive threats of both fixed wireless and Starlink because those products do not and potentially cannot have the capacity to keep up with the explosive growth in demand for bandwidth.
3) FTTH will only compete in dense urban markets, which only represents about 50-55% of cable's footprint.
4) Fixed wireless and Starlink will only compete in rural markets.
So cable is threading this needle between having superior on performance AND cost (FTTH) competition in urban markets and superior on performance (Starlink) OR cost (fixed wireless) in rural markets, leaving them only with a competitive advantage in suburban markets that are too dense for Starlink or fixed wireless AND where telcos choose not to compete with FTTH.
At the same time they are threading a needle of being in a relatively good competitive position if demand for bandwidth continues increasingly rapidly (making Starlink and fixed wireless less competitive) but not so rapidly that customers are compelled to upgrade to FTTH where they can get better speeds.
A quick google search shows about 75 million total broadband subscribers in the US vs. about 132 million households, or 56% penetration. I have to think a majority of the incremental growth in broadband subs for cable cos is coming from rural markets (please correct me if I'm wrong) at the same time that two new competing products (Starlink & fixed wireless) are entering the rural market, providing competition for the marginal broadband sub for the first time.
And let's say cable hits the goldilocks scenario on all sides...what's the upside? If the bear case is one or more of these competing technologies takes significant share, and the base case is status quo, what's the bull case?
Thanks again for sharing your thoughts on this industry!
Andrew - I was wondering if you have any thoughts on the route taking place in cable stocks?
Do you think the cause is primarily macro (combination of market beta + taking an extra markdown because of the extra cost to service the debt at higher rates going forward), or micro (lack of subscriber growth, TMUS fixed wireless product taking share).
Surely it is some combination of the two, but I'm interested to hear your opinion on what the more impactful driver is for Charter at this stage, and what drives the outlook/stock from here.
This series has been illuminating, thanks Andrew.
I have to say though, even though I think I agree with most everything you've said, I'm still skeptical of the medium and long-term risk/reward for investing in cable. It just feels like there's competitive threats on multiple sides and many ways to lose, even if each individual threat has low-odds of unseating cable in any given market. Even though much of the competition is on the margin, growth happens on the margin. As a relative noob, this is how I'd summarize what I'm hearing (again, I'm a noob, so please correct me if anything I'm saying is off base):
1) Fiber, admittedly, is a superior product at a lower cost than cable, but cable is good enough to meet customer's needs in all but the most explosive growth in bandwidth demand scenarios and so the natural end state of market share in competitive markets will be a 50/50 split between cable and fiber, because inertia.
2) At the same time, cable is insulated from the competitive threats of both fixed wireless and Starlink because those products do not and potentially cannot have the capacity to keep up with the explosive growth in demand for bandwidth.
3) FTTH will only compete in dense urban markets, which only represents about 50-55% of cable's footprint.
4) Fixed wireless and Starlink will only compete in rural markets.
So cable is threading this needle between having superior on performance AND cost (FTTH) competition in urban markets and superior on performance (Starlink) OR cost (fixed wireless) in rural markets, leaving them only with a competitive advantage in suburban markets that are too dense for Starlink or fixed wireless AND where telcos choose not to compete with FTTH.
At the same time they are threading a needle of being in a relatively good competitive position if demand for bandwidth continues increasingly rapidly (making Starlink and fixed wireless less competitive) but not so rapidly that customers are compelled to upgrade to FTTH where they can get better speeds.
A quick google search shows about 75 million total broadband subscribers in the US vs. about 132 million households, or 56% penetration. I have to think a majority of the incremental growth in broadband subs for cable cos is coming from rural markets (please correct me if I'm wrong) at the same time that two new competing products (Starlink & fixed wireless) are entering the rural market, providing competition for the marginal broadband sub for the first time.
And let's say cable hits the goldilocks scenario on all sides...what's the upside? If the bear case is one or more of these competing technologies takes significant share, and the base case is status quo, what's the bull case?
Thanks again for sharing your thoughts on this industry!
Andrew - I was wondering if you have any thoughts on the route taking place in cable stocks?
Do you think the cause is primarily macro (combination of market beta + taking an extra markdown because of the extra cost to service the debt at higher rates going forward), or micro (lack of subscriber growth, TMUS fixed wireless product taking share).
Surely it is some combination of the two, but I'm interested to hear your opinion on what the more impactful driver is for Charter at this stage, and what drives the outlook/stock from here.
TIA!
Too.good for the free blog. Should be for premium. Thanx!