Infrastructure and customer relationships are the keys to maintaining the competitive advantage that NCTC and ACA members have, is one of NCTC CFO Lisa Hood’s takeaway’s from Spencer Kern’s presentation on the opening day of the 2020 Independent Show. Hood’s comments encapsulate the fast-paced presentations and commentary from operator executives, telecommunication law experts, and a well-respected economist.
Broadband Bullish #
Kern, an analyst for New Street Research, is bullish regarding future growth for fiber broadband operators. He believes that broadband penetration has a long runway as it is eight times more valuable than anything else cable has to offer. The pace of broadband subscriptions is increasing, thanks in part to the drop in wireless-only households (reduced from 17M to 15M during the time of the shutdown). Monthly caps on wireless data is a driver for the move to residential broadband.
At the same time, self-installation and self-care are reducing costs for Charter and Comcast, whereby as many as 90% and close to 100% of new installations for these firms, respectively, are DIY. The shutdown accelerated the adoption of this change in business. The bottom line is that they are doing more with the same number of employees.
From Pole/Ped to Porch & More #
Small operators have also found clever ways to help their customers serve themselves, as Patty Boyers, president of Boycomm, describes with their Pole/Ped to Porch installation program (YouTube). Vyve CEO Phil Spencer emphasizes that, due to the shutdown, Vyve met its end of the year goals for new high-speed subscribers by the end of April.
Julie Laulis, President and Chief Executive Officer of Cable ONE, indicates that their “investment in their network has paid off.” By continuing to reinvest in the network, they were ready for the unexpected onslaught of new customers and network demand.
From a regulatory standpoint, Jim Gleason, CEO of VAST, points to the resilience of the networks as a proof point that current broadband regulation is working. WOW! CEO, Teresa Elder reinforces Gleason’s comments with her statement that, “Greater regulation would absolutely be a distraction and hurt the growth of the industry.”
The 5G Opportunity #
The investment in fiber will pay off as a way to defend against 5G networks and will also expand wireless offerings. In his presentation, Kern alludes to the opportunity for operators to provide bandwidth to wireless operators, as he showed a chart suggesting that 60 to 80% of the cost of small cell, 5G fixed wireless is in dense fiber backhaul.
The high capital cost of fiber will be to the advantage of operators, particularly in rural areas, as wireless providers contemplate make or buy decisions for infrastructure. Katie Espeseth, Vice President of New Products of EBP, summed up the willingness to work with potential competitors in a cooperative fashion when she said, “Fiber provides a future-proof architecture and allows you to build and be the partner to these 5G providers.”
Pay-TV Continues Its Slide #
Traditional Pay-TV penetration continues its slide and now stands at 58 percent, falling by a record 8.9% in the latest quarter. And, because programming costs are rising faster than the price operators charge to consumers, gross margins continue to slide. None of this is a surprise to NCTC and ACA members as the high-cost of content has already made Pay-TV a zero or negative margin business for many. Kern believes that the opportunity for broadband operators is in aggregation.
Of course, the increase in retransmission fees over the past decade is a big reason for the decline in margins and that was a topic of discussion. Ross Lieberman, ACA Connect’s SVP of said he was hopeful about new negotiations and indicated that the new rule that allows NCTC to participate in retransmission consent negotiations has been helpful. Still, Frank van der Post, president of Atlantic Broadband, pointed out that retransmission consent won’t be sustainable for much longer and that the regulation is based on conditions in the early 1990s.
The not-for-profit Locast presents an alternative for viewers to consume broadcast television content on any screen. It has grown to serve 1.5 million people over 23 markets equaling 44.3% of the population since Steve Pastorkovich wrote this excellent summary of this alternative distribution approach to broadcast TV.
Locast founder, David Goodfriend, who served as Deputy Staff Secretary for President Clinton, indicated that this project is the most important public service project he has ever done. Locast is an attractive option for people who need local television, but cannot receive it for reasons of economics or physics. His vision is that Locast becomes the place for local news and that Locast strengthens local journalism perilous position.
The Zoomtown – the 21st Century Boomtown #
Despite the challenges operators face with Pay-TV, Kern believes that EBITDA growth over the next 5 years should be in the 7 to 10% range and that free cash flow will grow even more. As such, he believes cable stocks are undervalued at 10x earnings, compared to similar infrastructure sectors that have multiples of 20x and, even, 30x earnings.
It is not clear if Kern’s comments factor in all the macro-economic effects of the shutdown, as brilliantly spelled out by economist, Marci Rossell. Her conclusion from the economic data is that the pandemic is going to permanently change the way people work, live, and play. She compares what is happening today to the paradigm shift that was seen after 9/11.
Rossell warns that we will see a different kind of recovery since the impacts of the shutdown are not evenly distributed across economic sectors, geography, and income levels. In turn, this could have unexpected consequences in the political sphere.
It is clear that an increase in short and long-term uncertainty will be one outcome. The reaction to this uncertainty will be revealed in everything from contracts to important life decisions, such as where one chooses to live.
As such, residential real estate appears to be a sector that will lead the economy to recovery. People are looking for locations where they can work from home, that are car-friendly (don’t have to rely on public transportation), and that have open spaces. Rossell cites the recent record in mortgage originations and the increase in inter-state immigration as signs of a move to suburban and rural areas.
Broadband Infrastructure – A Must-Have #
This move away from congested cities, like New York and San Francisco, to places like Madison, Austin, Salt Lake City, Atlanta, and Nashville is already occurring. Rossell also expects an uptick in demand for second homes as people want to be able to go outside. From a cultural perspective, people and companies are adapting to work from anywhere.
This shift away from the office has got to be a boon for NCTC and ACA members. Thanks to decades of continual investment, the operators’ broadband infrastructure is ready for the demand of a remote, 21st-century digital workforce.