For some years, cable broadband growth has been driven, in large part, by customers switching from lower-speed telco broadband. But broadband financial analysts at MoffettNathanson Research see that changing, now that telcos have made substantial progress in upgrading their broadband speeds.
Moving forward, “perhaps the more important factor is new household formation,” MoffettNathanson researchers said in a slide show that accompanied a recent conference call with investors.
Some areas of the U.S. – primarily between the two high-tax coasts – are seeing higher rates of household formation, the researchers note. That’s good news for a company like Cable One that primarily serves those growth areas, but bad news for a company like Altice that is focused on areas with a low household formation rate. The household formation rate within Charter’s territory will be about the same as the national average, while Comcast will be a “modest net loser,” the researchers said.
Cable Broadband Growth
According to a MoffettNathanson analysis based on its own estimates and on FCC data, 68.9% of U.S. broadband subscribers purchased speeds of at least 25 Mbps, including 29.4% that subscribed to service of 100 Mbps or higher, as of the second quarter 2017 — the most recent quarter plotted. Those percentages undoubtedly are greater now, as they have been climbing steadily every quarter.
This growth has come, in large part, at the expense of mid-tier telco offerings. More than half of broadband subscribers (50.5%) purchased speeds between 1.5 and 10 Mbps as of the second quarter of 2014. But that percentage stood at 33.9% as of the second quarter of 2017.
The upshot is that cable companies’ opportunity to take market share from telcos is in decline.
Over the last 12 months, however, new household formation has run at an above-average rate relative to the last two decades, the researchers note. Over the past decade, the average year-over-year increase in occupied housing units was .8%. But that number was 1.5% for 2017.
According to the researchers, 73.2% of broadband net additions in the second quarter of 2018 and 46.1% of net additions in the third quarter resulted from new household formation.
Overall, new household formation will be limited by a relatively slow population growth rate, however. The year 2017 experienced a record low birth rate of just .7%, the researchers said. What might potentially offset that would be a decrease in the average number of residents per household. According to the researchers, a .2% decline in the number of residents per household would be required for a 1% growth in households. The challenge, however, is that the adult population per household has remained relatively stable at just under 2 for the past three decades.
The upshot is that migration patterns could have a major impact on where new households are formed, and ultimately on broadband growth rates, potentially creating net gainers and net losers, according to the researchers. New York, West Virginia, Alabama, Louisiana, Illinois and Wyoming saw their populations decrease by more than half a percentage point between 2017 and 2018. States seeing the biggest population gains (above 1.25% over the same time period) were Washington, Idaho, Nevada, Utah, Colorado, Arizona, Texas, and Florida.
The MoffettNathanson researchers focused only on the cable companies in gauging the growing importance of new household formation on broadband growth prospects, but other types of broadband providers also are likely to be increasingly impacted by population trends moving forward.