Cable Operators Selling Beyond Basic Video

Implications: The 2007 third quarter earnings for Comcast have implications for “cable’s clout” and selling beyond basic video services.  Instead of digital voice and TV, the target market has become subscribers for high- speed Internet access.

Analysis: Comcast’s third quarter 2007 results indicate the undermining of “cable’s clout” and the problem for cable operators in product positioning and market competition.  Comcast was able to meet expectations in basic video services by adding 489,000 subscribers for the 2007 third quarter.  But the high-speed Internet additions declined to 450,000 from 538,000 in the year-over-year quarter.  And the 662,000 additions of digital voice subscribers were below the 725,000 expectations.  The 54% earnings decrease year-over-over showed the problem of getting the higher margin from full-service digital subscribers for voice, video, and Internet.  Meanwhile, AT&T’s high-speed Internet subscribers rose 18.6% for the third quarter year-over-year.  AT&T’s Internet access growth has been about 400,000-500,000 per month for the past year.  And Verizon has been adding FiOS subscribers at a pace of 2,600 subscribers per day.
The cable operators have been distracted by winning digital voice from the telephone operators instead of positioning Internet access as the business driver.  The ubiquity of mobile phones has reduced the revenue potential from wireline voice.  Cox Communications had previously won the appeal to the FCC for open access to inside wiring in apartment buildings and MDUs.  But the challenge now is the FCC ruling against all exclusive service contracts of pay-TV providers.  The major players of Comcast, Cox, Time Warner Cable and Cablevision are confronting a different marketplace of video, Internet, and consumer choice.