Cable's broadband ARPU to rise, but subs growth will be 'minimal' – analyst

After US cable operators enjoyed rocketing broadband subscriber growth during the earlier phases of the pandemic, they've been in a quarters-long period of small or flat subscriber growth along with some instances of decline.

Operators have pinned the blame on multiple factors, including less housing-move activity, generating fewer "jump balls" to gain share in an already-saturated market, alongside increased pressure from fiber and fixed wireless access (FWA) service providers.

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Some operators, such as Charter Communications, are generating broadband growth opportunities using a mix of edge-outs (network builds to areas adjacent to existing facilities), organic builds in greenfield areas and buildouts in rural areas that, in some cases, are being subsidized by government funding.

Amid all of this, some cable operators are urging investors to consider average revenue per user (ARPU) growth, not raw subscriber growth, as the metric upon which to judge their broadband businesses.

Some analysts are on board with that argument. "We believe it is not an overstatement to say that the trajectory of broadband ARPU is now likely THE most important issue for Cable investors," MoffettNathanson analyst Craig Moffett explained in a new report (registration required) that sizes up the US broadband industry, with an emphasis on ARPU trends. "In the absence of unit growth, ARPU growth is, well, everything."

Cable broadband subs growth will stay low

He also had some good and bad news to share for cable's broadband outlook – ARPU is expected to grow in the coming years, but still believes that the industry's broadband sub growth will be "minimal going forward" as share is lost to fiber and FWA competition.

Still, Moffett expects cable broadband growth to stabilize. "[B]ut there is no longer ANY serious argument that terrestrial broadband growth will meaningfully re-accelerate."

As an example, he expects Comcast to grow broadband subs at a pace of just 0.7% in 2025, 2026 and 2027 – a forecast that does not yet account for any subsidized rural builds. His forecast for Charter, which does include contributions from the Broadband Equity, Access, and Deployment (BEAD) program, sees annual growth of 1.6% or 1.7% in that date range.

Moffett acknowledges that forecasting broadband pricing is ultimately a judgment call, but adds that some ARPU-pushers, such as up-tiering to faster speeds and the unbundling of video services, continues apace. But he also points out that cable prices are generally higher than competing fiber prices, a situation that "naturally gives us pause."

Moffett believes that the data, despite some wildcards, still supports a view that broadband ARPU growth to be "something close to the historical average of 3% or so … a rate below the recent rate of inflation, but still meaningful."

Broadband speeds and pricing aren't uniform

Broadband pricing and speed options vary by operator and market. Meanwhile, there's no uniform ARPU metric among the US cable operators Moffett covers. Cable One, an operator with little fiber overlap, tops the list at $83.58, followed by Altice USA ($74.65), Comcast ($70.92) and Cable One ($83.58).

"To state the obvious, it is harder to grow a $75 ARPU (Altice USA) than it is to grow a $67 one (Charter)," the analyst noted.

While Moffett does buy cable's ARPU story (to a point), he doesn't buy the industry's excuse that low move rates are depressing subscriber growth. "[T]hat would only be true if Cable were still gaining market share (in which case additional moves would accelerate those share gains). If Cable were losing market share, lower move rates actually help rather than hurt," he noted.

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— Jeff Baumgartner, Senior Editor, Light Reading