• Broadband is a Booming Business, Especially for Cable Operators

    Broadband Internet access is a booming business in the U.S., especially for cable TV operators. According to data released last Friday by Leichtman Research Group, the top U.S broadband ISPs (accounting for 93% of the market) added nearly 384K subscribers in Q2 '14, the most since Q2 '09.  Q2 '14 additions were 29% higher than those in Q2 '13 and 16% higher than those in Q2 '12.

    Because the law of large numbers is working against broadband ISPs, adding even the same number of subscribers year-over-year is impressive, while adding more is even harder to do. For example, at the end of Q2 '12 there were 80.3 million broadband subscribers in the U.S., while at the end of Q2 '14 there were 85.9 million.

    As always, cable operators were the big beneficiaries of broadband's surge in Q2 '14, collecting 99% of all new net broadband subscribers, with U.S. telcos only gaining 2K. The 2 biggest telcos, AT&T and Verizon, actually had gross additions of 627K subscribers, but because they continue to churn out DSL subscribers, they lost a net 9K subscribers between them. Cable operators now have 59% of all U.S. broadband subscribers, up from 55% in Q2 '10.

    Even as broadband has boomed for cable operators, TV has declined, due to more vigorous competition from both telcos and satellite operators. As a result, as LRG notes, for the first time, the top cable operators now actually have slightly more broadband subscribers (49,915,000) than TV subscribers (49,910,000). It's worth mentioning that Comcast, the biggest operator and ISP, which has also invested most aggressively in upgrading its TV experience with the X1 platform, still has more TV subscribers (22,457,000) than broadband subscribers (21,271,000).

    The boom in broadband is being driven both by convenience/productivity factors (e.g. it's far easier to do Google searches on a fast broadband connection) as well as the range of new applications that are broadband-dependent. At the top of the latter list is of course online video. As the video choices (e.g. Netflix, YouTube, Hulu, Amazon, etc.) and number of ways to watch (e.g. connected TV devices, tablets, smartphones, etc.) have exploded, the rationale for having a broadband connection, along with WiFi, has become even more compelling.

    To me, this is always what's been most potentially disruptive about broadband: it's a bona fide new video distribution system that connects content providers directly with their audiences. Whereas for the past 40 years or so, having a subscription to pay-TV was the only way to gain access to more video choices beyond broadcast TV only, broadband explodes this paradigm.

    We've already seen many successful video businesses built on this fundamental change. Now, with the base of broadband subscribers getting ever-larger, plus the content and devices getting ever-better, the question of just how disruptive broadband really is will move to center stage. There has been lots of chatter about cord-nevering and cord-cutting, but with little measurable impact to date. Will that continue or not? We'll see.

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