The term “metaverse” has become a thing again because Mark Zuckerberg has decided to wholeheartedly embrace the idea of a 3D, interactive world where users can work, play and be entertained, even changing Facebook’s holding company name to Meta. 

So while the social media mavens continue to tout how the cool kids will use whatever Silicon Valley can throw at them to interact with content, create creepy little avatars of themselves while they talk to and text their friends’ equally creepy-looking avatars and play games and whatnot using advanced augmented reality (AR) and virtual reality (VR) technology, just remember that this is really nothing new. 

It’s being touted as a revolution but for me, a person definitely way outside the target audience for these products, we’ve been down this road before. Interacting with content is nothing new for media watchers — we’ve been talking about it ever since Time Warner Cable launched the Full Service Network back in the 1990s. And with streaming and ultra high-speed broadband outpacing more traditional forms of entertainment consumption, media types have long prepared for this inevitable evolution.  

But the media business has never met a buzzword that it couldn’t beat to death and for the moment, “metaverse” appears to fit that bill. According to Bernstein Research, “metaverse” mentions on public company conference calls rose from just one in Q2 2020 to 449 in 3Q 2021.

Even actor Keanu Reeves, an owner of bitcoin and enthusiastic embracer of technology — he’s Neo, for gosh sakes — has asked for the metaverse hype to be turned down a notch, telling The Verge during the press tour for the upcoming Matrix: Resurrections movie that the term is decades old. 

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“Can we just not have metaverse be like invented by Facebook?” Reeves told The Verge. “The concept of the metaverse is like, way older. It’s like, c’mon man.”  

Bernstein Research hosted a conference call with its clients about the metaverse on Dec. 10 (a transcript was provided on Dec. 16) and for software developers and hardware manufacturers it appears that momentum is going their way.

According to Bernstein, the metaverse could represent a $2 trillion annual revenue opportunity, but there is a big question regarding timing: nobody knows exactly when that opportunity will come. Still, that revenue is expected to come from multiple sources — advertising, gaming, software, mobile apps and more — and some is even being spent to some extent today.  

“Companies are already spending to build it [the metaverse] and that costs real capital dollars,” Bernstein Internet analyst Mark Schmulik said on the call. “As they build it, we're already starting to see certain companies like Meta gain traction in hardware sales and related software sales. While it's still too early to draw a line of whether that's going to be successful or not, it's certainly underway.” 

That includes cable and telecom companies, which see the metaverse as another catalyst to drive the need for higher speeds. On the Dec. 10 Bernstein call, cable and telecom analyst Peter Supino noted that he expects 80 million U.S. homes to have at least one way to purchase Gigabit symmetrical service by 2025. 

And while wireless has been capacity constrained in the past, Supino noted that about 500 megahertz of mid-band spectrum has been reallocated by the Big Three carriers (AT&T, Verizon and T-Mobile) to 5G. 

The metaverse also is important to the cloud services business, because connecting as many machines as possible is a big priority. And that need for connectivity could be a potential boon for Dish Network, which has about 100 MHz of fallow wireless spectrum and partnership possibilities with Amazon Web Services, Azure or Google Cloud. 

“Dish is an unencumbered, high capacity link between the industrial metaverse and the cloud service providers that would like to serve and foster it,” Supino said.

But on the media and entertainment side, the benefits of the metaverse aren’t so clear.

Bernstein media analyst Todd Juenger admitted he was a “card-carrying” cynic when it comes to the Metaverse, adding that with all the hype surrounding the industry’s latest buzzword, he’s feeling more than a little déjà vu.  

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“The reason I'm cynical is that I feel like I've seen this before in media and entertainment,” Juenger said according to the transcript. “To me, the metaverse just sounds like a new word to describe an evolution that's naturally happening anyway.”

He then went on to offer an example. Remember 3D? Not too long ago, in the wake of James Cameron’s Avatar, the most successful 3D movie ever made, all content was supposed to be 3D, movies, television, networks began springing up all over the place. In 2010, ESPN was set to launch a 3D channel, Discovery was teaming up with Sony and IMAX to launch a 24-hour linear 3D network with movies, documentaries and children's programming and electronics vendors were scrambling to introduce 3D TVs to satiate what they expected to be tremendous demand. 

I don’t have to tell you what happened, but I’ll let Juenger tell you why it did anyway. 

“A couple years go by and where is 3D, right?,” Juenger said. “It was just [that] consumers didn't like it. They didn't benefit from it. It was almost being forced upon them.”

Sound familiar?

Also: A New Reality Check for VR and AR 

Juenger went on to talk about AR, which was all the rage a few years ago, fueled by Pokémon Go, the mobile game that had young and old alike wandering into traffic to capture little AR anime figures. That was supposed to take the video game business by storm and again, it didn’t. Juenger recalled that while Pokémon Go was a massive success and its still going relatively strong, it remains the go-to example of AR’s supposed takeover of the video game business a half decade after its introduction. 

“It's funny that when we talk about AR when it relates to media, we still have to use Pokémon Go as the example, right?” Juenger said, noting that in the entertainment business, everybody copies everybody else, but so far that hasn’t happened with AR. 

“If AR is a big idea, where are the other AR video games?” Juenger said. “Why do we still have to point to Pokémon Go?”

Juenger wasn’t denying the opportunity that a new and improved metaverse presents. He just believes that the concern as to whether media and entertainment companies will take advantage of it is a bit misplaced.They already seem to be doing it. 

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“When it comes to entertainment, I will say the content creation will follow the technology platforms.” Juenger said. “I don't deny that there will be a big advancement in devices people use and [are] using social elements of entertainment, which incorporates elements of what we call the metaverse.”

Juenger, who also follows the video game industry, said that Roblox, the online platform that allows people to play games created by other users, already bills itself as a metaverse. The difference between Roblox games and more traditional games like Grand Theft Auto, he said, is that a user can move his Roblox avatar through different games. 

“I'm not sure you even want to take your GTA persona and move it into a different game, so maybe those will just stay separate,” Juenger said. “In terms of VR and AR games — in VR games, every major publisher makes some — but they all tell you that they just earn the minimum. And the only reason they do it is not really to make money, it's really just to stay involved and to build capabilities in case this takes off.” 

Even Disney has jumped on the metaverse bandwagon, envisioning a merger of the physical and virtual worlds in its theme park experiences, which Juenger said, although a  bit cringe-worthy, probably makes sense. 

“To me, that just sounds like an idea of a Disney video game,” Juenger said, adding that the prevailing wisdom that only huge conglomerates can afford to take advantage of metaverse opportunities may not hold true. 

Sure, the mega-media giants like Disney have all the money, technology and resources and have managed to build huge communities with their brands, but their size can make them slow to react to changes in the business. With development getting easier and faster and distribution barriers being shattered across the landscape, Juenger said some believe it is time to consider smaller, faster, more advanced startups to displace some of their older, larger competitors.    

“This is all still new enough and video games are inherently innovative,” Juenger said. “I would bet on the big IPs. But I think it's an evolution, not a revolution. Video game manufacturers — they've gone through a lot of change already. I think this is just another one.” 

Other analysts have delved into the metaverse conversation, with Evercore ISI Internet analyst Mark Mahaney issuing a 33-page report on December 10 that highlighted the pros and cons of the technology. Pros: there is a lot of money to be made. Cons: It’s going to take a big change in consumer behavior to realize that revenue.

On the plus side, Mahaney said Meta (the former Facebook) is putting its money where its vision is, investing more than $10 billion annually in the concept, has about 3.5 billion monthly users in its family of apps that are already engaging in what is most likely the core use of the metaverse (social media); and has the majority of the VR device business through Oculus Quest. And the pandemic has shown that consumers are willing to interact more online -- Zoom went from 10 million data meeting participants in 2019 to 300 million by April 2020. Roblox has more than 47 million DAUs that average 2.6 hours per day on the platform in Q3 2021, and while VR adoption is still nascent -- about 2% of monthly users on Steam -- it is rising.

But there’s a downside too. According to Mahaney’s report, the biggest question is whether enough consumers will swap “real” reality for virtual reality or whether VR will just be another niche product. And then there is the technology part of the metaverse. Zuckerberg has said that the biggest challenge for the industry is cramming a super-computer into the frame of normal-looking eyeglasses. 

“Ultimately, we need high-fidelity graphics, low latency, with hundreds of millions of concurrent users in real-time at a relatively cheap price point,” Mahaney wrote.

That, to me, is going to be the real deciding factor in this. People have different expectations as to how the metaverse will look and feel and I will bet you that none of them has a basis in the current reality.

The technology industry is really good at driving interest and excitement about technology, but it takes time for these things to deliver what’s being promised. And now they are talking about a technology that in order to work as promised is literally going to have billions of users accessing servers and whatnot simultaneously. Just think of how annoyed you get when Netflix takes too much time to load a movie and multiply that by 1,000 or so when your virtual jaunt through the rainforest crashes into a sea of pixels. 

And then there are the social and privacy aspects. It’s probably a safe bet that to keep the cost of these products and services down, people are going to have to give up a load of personal data. Sure many are doing that already, but you’ve got to wonder how much more everyone is going to have to surrender to make a low-cost metaverse worthwhile. 

And as far as the social impact, while most people have spent a year in isolation, when they get a chance to go out and interact with actual people, they do it in droves. The news is full of stories of people, young and old, that risked going to large gatherings during the outbreak. Heck, just yesterday (December 16), AMC Theaters said that 1.1 million people went outside to an actual movie theater to watch Spiderman: No Way Home, the second largest box office day in AMC’s history  (The Avengers: Endgame was No. 1). 

So I guess what I’m saying is that for the metaverse to really be worth the hype, it has to deliver on its promises. If it doesn’t, it risks turning consumers off of the concept, or at least substantially delaying its acceptance until it resurfaces years later with another name -- my vote is for  Vitametamegaverse (“It’s So Tasty Too!”). And that’s another thing that this industry has seen before.  ■ 

Bernstein Research said Friday that influential media analyst Todd Juenger will take a sabbatical and that it would temporarily suspend coverage of media companies in his absence. 

“We are temporarily suspending coverage of U.S. Media because the Senior Analyst (Todd Juenger) is going on sabbatical,” Bernstein said in an email message to clients. “We plan to reinstate coverage following the Senior Analyst's return in a couple of months. Effective today, July 30, 2021, our previous reports, ratings, target prices and earnings estimates should no longer be relied upon. Team members can be contacted with requests for pre-existing models and content.”

Juenger joined Bernstein in 2012 after heading up TiVo’s Audience Research business. At Bernstein he made a name for himself quickly with insightful coverage of programming stocks like Viacom (now ViacomCBS), The Walt Disney Co., News Corp (now Fox Corp.), Time Warner (now AT&T), and Netflix. His April 2012 report tying Netflix licensing deals to the precipitous drop in ratings for kids’ programming at cable networks was one of the first to highlight the impact of streaming services on linear TV.

Juenger’s current coverage list includes programmers ViacomCBS, Discovery, AMC Networks, Disney, Lionsgate Entertainment, and Netflix; ratings measurement giant Nielsen; music companies Spotify Technology and Warner Music Group; and video game companies Activision Blizzard, Electronic Arts, and Take-Two Interactive Software.    

Bernstein's coverage of U.S. cable operators, satellite TV and telecom companies, currently handled by senior analyst Peter Supino, will not be affected.  

More than a month after saying it would combine with WarnerMedia, creating a streaming and linear content giant called Warner Bros. Discovery with annual revenue of more than $43 billion, market reaction to Discovery Inc. has been tepid at best, with its stock dropping 26% from a high of $39.70 each on May 17 to $29.51 on June 23. At the same time, AT&T stock, which was up about 11% since the Feb. 25 plan to spin off DirecTV  -- has fallen 15% from a high of $33.81 on May 17 to $28.65 on June 23. 

Not exactly the stock performance dreams are made of. 

In a research note Thursday (June 24), Bernstein media analyst Todd Juenger deconstructed the merger, cited by countless screaming headlines as the creation of a “streaming powerhouse” that would combine the best content assets with the best management during the best time ever to be a content company. But according to Juenger, just like in the movies, the reality is a lot different. 

First, Juenger took issue with calling the merger the creation of a streaming powerhouse. That, he said, couldn’t be further from the truth because despite their streaming offerings -- Discovery Plus and HBO Max -- both companies “are almost entirely cable network companies.” And that, he said, isn’t any better either.

Juenger noted that all of the funds to support their streaming efforts come from traditional linear network affiliate fees and advertising revenue, both segments which are in sharp decline. And he added any unanticipated disruption to that side of the business -- accelerated cord cutting, a drop in ad revenue, a recession -- would put the entire streaming strategy at risk.

“Ironically, the more successful the streaming service becomes in the market – the more pressure is put on the linear networks,” Juenger wrote. “Which is the tyranny of the innovator's dilemma. (And also important to investor expectations about earnings and multiple. The more bullish one is on streaming, the more bearish one must be on legacy. And vice-versa). “

Adding to the potential injury is that both companies have networks with their own specific risks. Discovery’s networks, according to Juenger, have the highest operating margins in the industry (60%), but the risk is that any downturn in revenue would fall directly to the cash flow line at a very high rate.

WarnerMedia’s Turner networks like TNT and TBS, as general entertainment channels have “no specific content proposition, differentiation, or reason to exist in an increasingly on-demand world,” according to Juenger and rely on a handful of sports rights to keep distribution and pricing. Its news networks like CNN , he added, aren’t in control of their content cycle, adding to volatility. 

“With all these structural and specific risks to the linear networks, the new company will emerge with roughly 5x financial leverage (and a promise of using excess FCF to de-lever),” Juenger wrote. “We think this puts the company in a very difficult box to start from: promises to both invest in streaming and invest in de-levering. It also greatly amplifies risk to equity value. Any downturn in either EBITDA/FCF, or the valuation multiple of the stock, will fall entirely and sharply on the equity holders.” 

Adding to the pressure is the longer the merger takes to complete, the higher the risk of entropy at the operating companies, especially HBO Max, Juenger wrote, adding that HBO and Discovery were late to the streaming game as it is. 

By the time this deal closes, another year will have passed, and Netflix, Disney, Amazon, Apple, Paramount, et al are not going to stand still,” Juenger wrote. “Additionally, there is a risk of entropy during the next year as the deal works its way towards closing.”

And there is precedent for that. Juenger pointed to the Disney Fox merger. In months between the Dec. 14, 2017 announcement of the deal  to its close on March 20, 2019,  Fox lost much of its key management talent and according to Juenger,  those that remained were “in a state of paralysis.”

“All momentum had been lost, and Disney was left with a big operational turnaround project,” Juenger continued. “We think it is highly likely this same dynamic sets in, particularly at HBO.”

Over the past several years HBO has had multiple owners, multiple leaders, and multiple strategies, the analyst said. While returning to the hands of a media owner -- Discovery -- should put some smiles on employee faces, Juenger wrote they may not last for long. 

“[I[t's not fertile ground for stability when your company has been treated like a foster child being shopped from one temporary home to another over the past many years,” he wrote, adding that the combined entity’s plans to extract $3 billion in synergies from the union over time will add to the malaise. 

“The employees will see that $3 billion synergy number and wonder who is going to lose their jobs (and if they keep their job, how it will change),” Juenger wrote. ”One couldn't blame any of these employees for considering other employment options. The best talent will be ripe for the picking by other entertainment companies.”

Aside from the operational issues, how the combined company plans to price its streaming services will be a key to their success. Juenger has touched on this notion before, and with HBO Max priced at about $14.99 per month ($9.99 for an ad-supported version) and Discovery Plus priced at $6.99 per month for its ad-free version and $4.99 for an ad-supported offering, he doubts it will be a simple mash-up of prices. 

Neither Discovery or WarnerMedia has commented on potential pricing, but Juenger estimated it will likely be about $15 per month for a combined offering. 

Juenger was quick to admit that the market will forgive pretty much any operational shortfalls if the streaming service exceeds expectations, especially on the subscriber front. And so far he said history points to streaming products -- ranging from majors like Netflix and Disney Plus and smaller operations like CBS All Access and Starz to niche players like Shudder and Acorn -- outperforming predictions. 

“Of course, all this recent streaming adoption came in the middle of a stay-at-home pandemic,” Juenger wrote. “Which, we think, did accelerate the overall consumer adoption of streaming in a meaningful and lasting way. But we also expect some shakeout as the world settles back down.”

Earlier this month, researcher Parks Associates said that 46% of U.S. broadband homes subscribe to four or more streaming services, a number that Juenger predicts will be whittled down to three, with the services offering the most content value for the lowest prices the obvious winners. 

“The bullish view of Warner Bros Discovery is either that they will be among those top three global services, or that consumers on average will subscribe to more than three,” Juenger wrote, adding that HBO’s history of introducing compelling series every year, coupled with Discovery’s reality content and international presence could be enough to move the bull case forward. Or he wrote, the legacy pay TV service could last longer than expected, or subscribers could have a higher tolerance for price increases than originally perceived. 

Or better yet, Warner Bros. Discovery, as the new company is called, will become the streaming powerhouse its new owners believe it is destined to be. 

Bernstein media analyst Todd Juenger said Tuesday that Netflix could be readying widespread price hikes across Western Europe this year, in line with its earlier increases in the United Kingdom, Germany, Japan and Argentina.

Juenger tracked Netflix pricing across 50 countries and said the SVOD giant’s strategy is pretty clear -- increase pricing every two years; raise charges aggressively for its Premium package, moderately on its Standard plan and rarely on its Basic plan. He added that on average, the price increases are in the mid-single digits.

“After very little pricing activity in 2020, evidence is growing that we will see widespread pricing increases in 2021,” Juenger wrote in a note to clients, pointing to “significant” price increases in Q1 in the U.K., Germany (bringing pricing in line with Austria and Ireland); Japan and Argentina. 

Netflix raised pricing for its Standard plan in Canada by about $1 per month and by $2 per month for its Premium plan in early October and three weeks later raised pricing for Standard and Premium plans in the U.S. by similar levels. Juenger estimates that Austria, Ireland and Germany could prove to be similarly “leading indicators” for price hikes in Europe, “perhaps a more gradual roll-out across the Continent rather than one uniform, lockstep pricing change.”

In the United Kingdom, Netflix raised prices for its Standard plan by $1 per month (11%) and by $2 per month for its Premium plan (17%) in January. That same month German customers saw pricing for the Standard plan rise 8% and 13% for the Premium plan. In Japan, Netflix said in February that it would raise prices for the Basic and Standard plans by 13% each. The biggest percentage hikes were in Argentina, where Netflix said in Q1 that  it would raise pricing for all tiers --  Basic (40%), Standard (44%) and Premium (49%). Juenger added that the increases in Argentina were likely due to high inflation rates in Latin America and efforts to account for the decline in exchange rates compared to the U.S. dollar over the past year. He said that Netflix rates in Argentina are roughly 60% lower than in the U.S., in U.S. currency.

Netflix has been under some pressure recently as some analysts have pointed out that the service has lost as much as 31% of its global market share (despite gaining 40 million customers) given the increase in competition from new streaming services like Disney Plus, HBO Max, Paramount Plus and Peacock. 

On Tuesday, Netflix stock was up as much as 2.5% ($13.49 each) to $554.16 each in early trading, a day after  Evercore ISI Group internet analyst Mark Mahaney assumed coverage of the company, upgrading his rating on Netflix stock to “outperform” and raising his price target on the stock to $665 per share. Mahaney was encouraged by Netflix’s large cash position, which enables it to invest in more content, which in turn leads to more subscribers. Adding to that strength is Netflix’s massive platform coupled with a global recommendation algorithm that the analyst wrote has the power to transform good content into global sensations. As an example he pointed to shows like The Queen’s Gambit, which he wrote on its own made “chess cool again.”  

“Simply put, a dollar spent at Netflix arguably creates more marketing power than any other platform, generating greater leverage and potentially more subs,” Mahaney continued.

The three major publicly traded cable distribution stocks, up about 34% this year as positive sentiment around broadband growth has driven shares, could be even higher if private valuations are considered, according to a report by Bernstein media analyst Peter Supino.

The three top publicly traded cable distribution stocks -- Comcast, Charter Communications and Altice USA -- have ridden a wave of strong sentiment fueled by even stronger broadband additions. But using data from a recent private equity purchase in the sector -- Stonepeak  Infrastructure Partners $8.1 billion purchase of Astound Broadband -- Supino believes that the stocks’ prices could be between 32% and 91% higher. 

Supino estimated that Stonepeak valued Astounds at about 14.1 times the broadband company’s estimated $576 million 2020 cash flow. Considering that Astound is essentially an overbuilder in most of its markets, faces stiffer competition and has no inherent synergies with its new owner, applying that same valuation to publicly traded cable stocks would result in some serious upside. 

Astound consists of four companies -- RCN, Grande Communications, Wave Broadband and EnTouch Communications -- with about 1 million subscribers  across eight states and Washington , D.C., and has about 23,000 miles of fiber in its network. Stonepeak partnered with Patriot Media, which had been running the systems for former owner TPG for years, to continue to manage the systems. The deal is expected to close in the second quarter or 2021.

“Astound's sale price appears to be highly relevant to Altice, Charter and Comcast,” Supino wrote. “First, Stonepeak does not appear to bring material operating synergies (adjacent sales, billing systems, real estate, etc.) to the deal, so ‘the price is the price’ (notwithstanding tax assets). Second, we believe that Astound's systems are frequently third-to-market ‘overbuilders,’ which means they participate in markets which are inherently more competitive than the average of the US cable industry. Third, we do not see major fat to cut—TPG has been the owner of Astound, so we believe that the organization is efficient.” 

Applying those multiples would lift Altice USA’s stock price, ($34.07 on Dec. 1) up 91% to $65 each; Charter would rise 32% from $662.25 per share to $876.70 each and Comcast would gain 47% from $51.02 per share on Dec. 1 to $74.90 each. 

The possible election victory of Joe Biden and Kamala Harris in has worldwide implications, but for the cable industry, it all comes down to dollars and cents.

While a Democratic victory usually means greater scrutiny on the regulatory side — and a new Federal Communications Commission, which would oversee the rules — for businesses, Biden could seek to implement a corporate tax increase. Cable companies, long averse to tax payments, are mostly regular taxpayers now. And that could mean a Biden presidency could eat into profits.

See Also: 'Blue Ripple' Would Make Regulatory Waves | Hooray for Hollywood | Networks All In as Election Day Turned Into Election Days | The New FCC?

Bernstein media analyst Peter Supino did an analysis in mid-October of the potential impact of a Democratic victory on the cable business, determining that a 7% increase in the corporate tax rate, to 28% from 21%, would mean a 10% decline in profits for operators with mostly U.S.-based operations like Comcast, Charter Communications and Altice USA.

Comcast has been a regular federal taxpayer for years and Charter is expected to become one next year. Altice USA hasn’t had to pay federal taxes yet, according to Supino, but is expected to join its peers in paying Uncle Sam in 2021. AT&T is the wild card, the analyst wrote, “as they have had wildly different cash tax payments relative to expenses in the past.”

Still, the overall impact isn’t expected to be too great.

Shares in the top publicly traded distribution stocks were up even as the outcome of the election was awash in uncertainty early on Nov. 4. By late that afternoon, Charter was up 7.4%, Cable One had rose 7%, Altice USA was up 5.6% and Comcast was up 2.7%.

“Our coverage companies are well-practiced in tax optimization strategies, so we expect certain company cash flows to be impacted less than accounting earnings,” Supino wrote, noting that after the 2016 election, companies with higher proportions of U.S. income outperformed others for a period of weeks. He didn’t expect as dramatic a decline in a Biden administration. 

Other potential tax changes — an alternative minimum tax of 15% on companies with accounting profits of $100 million or higher, raising the tax rate on foreign income of U.S. companies to 21% and imposing a 10% surtax on companies that post jobs overseas to sell goods to Americans  (which will mainly apply to companies with call centers) — could all have an impact. 

Supino noted that although Comcast and AT&T have the biggest international revenue streams, they are small enough that the tax impact will be insignificant. 

“Because a Biden victory in 2020 would be less surprising than was the Trump victory in 2016, and because the proposed change in corporate tax rates is smaller than was the Trump proposal, we believe that the underperformance of the same stocks after a potential Democratic victory in 2020 would be less sharp,” Supino wrote.

On the programming side, MoffettNathanson media analyst Michael Nathanson wrote that the biggest threat of a Biden presidency is to Fox Corp., parent of Fox News Channel, which stands to lose the most if Trump starts his own rival news network. In a research note, Nathanson estimated that a Trump Network could poach about 20% of FNC’s news audience and capture 10% of the total news market. That could cost Fox News around $225 million in lost ad revenue and about $200 million in EBITDA.

“Given the singular financial importance of Fox News to Fox Corp., the fear of a new rival competing with Fox News has created a new, bearish narrative that appears to be restraining Fox’s equity momentum,” Nathanson wrote. 

About two years after it paid north of $100 billion (including assumed debt) for Time Warner Inc., AT&T is now floating scenarios including asset sales (DirecTV and possibly Cartoon Network), massive layoffs (in the “thousands”) according to published reports, and seems hell bent on getting back to its core wireless business (the seemingly only bright spot in its most recent financials). Essentially, five years after embarking on the bold new strategy that included doling out more than $150 billion to get into the media business, AT&T appears to want to take a mulligan. 

Also read: DirecTV Merger with Dish Shut Down Again by DOJ

Investors seemed to take it in stride. AT&T stock closed Oct. 13 at $27.75 each, down just 38 cents (1.35%) per share. So far this year the stock is down about 30%.   

News that AT&T has been thinking about selling DirecTV is nothing new. Heck, it’s been floated in one way or another practically since the day it bought the satellite TV giant in 2015 for $48.5 billion ($67 billion including assumed debt). That DirecTV has been bleeding subscribers for the past two years -- it has lost 6 million customers since Q2 2018 according to MoffettNathanson -- isn’t much of a surprise when you consider that the telco seems to have only purchased the company for its programming relationships in the first place. That was evident in the launch of DirecTV Now virtual MVPD service in 2016, a direct competitor to the satellite service and the subsequent abandonment of that platform for the direct-to-consumer offering of HBO Max this year. DirecTV Now, renamed AT&T Now in 2019, once touted as the future of the TV distribution business peaked at about 3 million customers and lost 68,000 subscribers in Q2. It now has about 1 million customers and is expected to lose more.

AT&T has reportedly restarted talks to sell DirecTV again, only this time, offers are coming in for about one-quarter of what the company paid for it, or between $15 billion and $20 billion. At the same time, AT&T has slapped a “For Sale” sign on its Xandr advertising unit -- remember when interactive ads were supposed to take advantage of the 170 million eyeballs AT&T controlled? -- and so far that too has been met with a tepid response. Other assets on the block include Vrio, formerly DirecTV Latin America, which pulled its initial public offering in 2018 and Warner Bros. Interactive, its video game unit. 

Related: AT&T and DirecTV: Divorce Won’t Be Easy 

According to MoffettNathanson principal and senior analyst Craig Moffett,  the only untouchable business in the portfolio seems to be HBO Max, the streaming service it launched on May 27. WarnerMedia, which houses most of the assets acquired in the $108.7 billion purchase of Time Warner, has gone through one massive restructuring earlier this year, which resulted in senior management like WarnerMedia Entertainment chairman Bob Greenblatt and chief content officer Kevin Reilly being shown the exit, and is going through another shift in focus under new chief Jason Kilar that could mean “thousands” of layoffs in the coming weeks.  And though HBO Max seems to be what AT&T is banking its media future on, even some of those assets are not entirely safe from the hatchet.   

In his interview with the Wall Street Journal on Oct. 4, AT&T CEO John Stankey said, for example, that Cartoon Network becomes less valuable for every hour consumers watch its programming on HBO Max instead of the linear channel. But he said he wasn’t ready to jettison Cartoon yet.

Nevertheless, it still sounds a lot like Stankey was casting a line into the water to see if anyone would bite on the channel. And Moffett thought so too, calling his mention of the network in the WSJ piece “a trial balloon” for “potentially shopping” the channel.

Related: It’s Not TV, It’s HB(Uh)O 

There also seems to have been a semantic shift on the part of the AT&T CEO. 

According to Moffett, when Stankey speaks of AT&T’s strategy now, he talks of fiber rollouts and wireless networks. As far as the media business, gone are the mentions of AT&T as a  “modern media company,” replaced instead by words and phrases like  “de-emphasize,” and  “prune” and “strip out,” the analyst wrote. 

Doesn’t sound like the argot of a guy who wants to stay in the media business, does it?

While AT&T seemingly looks to unravel the business it spent a half-decade building, the wireless unit, while a brighter spot than the rest, also is feeling the pain of the pandemic, with plans to shutter 320 AT&T Mobility stores by the end of the year, on top of the 250 stores already closed earlier in 2020. 

Still, it was AT&T’s Mobility unit (which includes wireless) that fared best in Q2 -- revenue was down nearly 1% to $17.1 billion but adjusted EBITDA was up about 1% to $7.8 billion. It’s other units did far worse. Revenue at the Entertainment Group, which includes DirecTV, was down 11.4% to $10.1 billion and adjusted EBITDA fell 18% to $2.3 billion. At WarnerMedia, revenue fell 23% to $6.8 billion and adjusted EBITDA was down 13% to $2.1 billion

Moffett speculated that there could be three possible reasons for the recent urgency around its media assets: AT&T needs capital to participate in the upcoming federal C-band wireless spectrum auctions; it needs cash to make sure it can pay shareholders their dividend; or, it could all be a part of a routine annual review of its portfolio that found many of these businesses to be “strategically superfluous.”

Moffett stressed that he has no direct knowledge of AT&T’s reasoning for the layoffs and divestitures.

“But the pattern is clear: 1) AT&T is trying to sell almost anything that isn’t nailed down; 2) they are, by and large, getting a disappointing response to the assets being offered for sale; 3) they are therefore left to dramatically cut costs, even in businesses that are ‘core’ to their latest version of AT&T.” Moffett wrote.

Moffett isn’t alone in his thoughts. In a telecom black book report issued Oct. 13, Bernstein media analyst Peter Supino said that AT&T’s HBO and Turner are “suddenly sub-scale and their audiences are under assault. With management instability and difficult industry trends, we think Warner Media is the next shoe to drop for AT&T.” 

But Supino added things will have to get worse at WarnerMedia before they get better. 

Supino applauded AT&T management for its stewardship of the telecom business, adding that in “today’s rapidly evolving, increasingly competitive video market, we think they are way outside its circle of competence.”

The Bernstein analyst also points out that the company’s public subscriber target for HBO Max -- 50 million customers by 2025 -- looks easy given AT&T’s 170 million overall customer relationships, it’s not a slam dunk. HBO has about 34 million paying customers, all who will get HBO Max. But he projects that the company will get another 11 million customers over that period, mainly from high-level wireless customers who will get the service for free, leaving it with 45 million HBO Max customers by 2025. That does not include any subscriber lift from an ad-supported version of HBO Max, which should come next year, making the 50 million-subscriber target “plausible, but not easy.”

Supino estimates that the company also is counting on about $2 billion in annual advertising revenue for HBO Max, but he’s not sure how they will get there.

“HBO Max incremental expenses seem to require advertising revenue, or more subscribers than planned, to make money,” Supino wrote. “As relates to more modest strategies, today’s streaming landscape seems unfit for conservative plans. Pick your poison, we think.”

For what it is worth, while the wireless business is performing better than its other parts, it’s no great shakes either. Wireless makes up about 60% of AT&T’s valuation, but is far from a growth business. And it is going to need significantly more investment for 5G services. 

Part of that investment will have to go toward amassing spectrum, and the federal C-band auction set for December fits the bill. Moffett estimated that AT&T’s chief wireless competitor Verizon will have to spend about $20 billion in the C-band auction just to keep up with T-Mobile, the No. 3 wireless carrier that has a significant spectrum advantage. AT&T will likely have to spend even more, but where that money will come from is in doubt. Even if AT&T did sell DirecTV, Xandr and Warner Bros. Interactive, it could still be far short of the mark.

Moffett added that some reports have valued the video game unit at about $4 billion, but that it is probably worth about half that  amount. Xandr, on a good day, could go for around $2 billion. Add $15 billion to that for DirecTV and it would still be short of the $20 billion-plus it needs to spend on spectrum.

And that's assuming it even gets that much for DirecTV. Moffett noted that DirecTV’s subscriber base is shrinking at 18% per year, cash flow is declining at a high-teens percentage pace and it isn’t launching any satellites to beef up its aging infrastructure. That, Moffett wrote, would lead any potential buyer to assume that the business is being run for cash, and the only way for that to be attractive is for the buyer to get in at a very low multiple.

That too, is a problem for AT&T because of its industry leading leverage. According to Moffett, any deal for DirecTV that comes in below 3.5 times cash flow -- its current leverage ratio -- would make AT&T’s leverage worse, not better. And reports so far see 3.5 times cash flow as the high-end range of bids. Moffett estimates that DirecTV is worth about 3.7 times estimated 2021 EBITDA, or about $13.7 billion, which would put it in the same range as reported bids. 

Moffett has never been a fan of AT&T’s forays into media -- he called the DirecTV merger in 2015 a mistake at the time -- and he currently has a “sell” rating on the shares. Back in January, he told CNBC that media companies that have diversified -- like Comcast with NBCUniversal and AT&T with everything else -- haven’t fared too well.

Comcast is currently under pressure to unload or spin-off its content assets because of secular headwinds to that business, too.  

Buying into the media business was supposed to protect AT&T from the volatility of the wireless business and the company even today says that bundling content offerings with various wireless and wireline broadband packages make them more compelling and stickier to fickle consumers. In the Journal piece, Stankey said AT&T’s deal strategy is just the first step in a “wash-repeat cycle” that has fueled growth at the company for decades, adding that its balance sheet has always been a “strategic tool” that can be used to take advantage of opportunities. 

“Sometimes you walk away from an opportunity, but you did it knowing that the best bullet you could put in the chamber was the transaction you did,” he told the Journal.

And sometimes, you just take a mulligan. 

Altice USA stock was up as much as 4.7% in early trading Monday after Sanford Bernstein media analyst Peter Supino upgraded the stock to “outperform,” adding that the shares are woefully undervalued and pointing to potential catalysts in its mid-sized Suddenlink Communications markets.    

Altice USA shares rose as high as $27.27 each, up $1.22 or 4.7%, in early morning trading. The stock was priced at $26.57 each (up 52 cents each or 2%) at 12:05 p.m. on Oct. 5. 

Supino wrote that Altice USA has suffered from sluggish growth in the past, but he believes the underlying fundamentals bottomed out earlier this year. With capital spending associated with its fiber buildout expected to decline as the company nears completion, and the sale of 49% of its Lightpath commercial telecom subsidiary expected to inject about $1.1 billion in cash to the company in Q4, Altice USA will be able to invest more in the business.

Altice USA made an unsolicited offer to purchase Canadian telco Cogeco with Rogers Communications last month, a deal that was soundly rejected by the target’s ruling Audet family. Altice would have purchased Cogeco’s U.S. cable assets -- Atlantic Broadband -- for $3.6 billion while Rogers would acquire its Canadian assets for $4.2 billion. While some analysts had expected Altice and Rogers to increase their offer, so far, the deal appears dead in the water. 

In the meantime, Supino believes that Altice USA should benefit from continuing to expand its homes passed, upgrading under-penetrated Suddenlink passings, modifying its MVNO agreement with T-Mobile and fiber upgrades to existing customers.

“Altice is a cheap stock of a solid business led by a highly incentivized management team,” Supino wrote. He pointed to the stock's low trading multiple (8.4 times cash flow) compared to peers like Charter Communications (11.6 times) Comcast (9.1 times) and Cable One (16.8 times). 

While most investors focus on Altice USA’s New York area markets (sold under the Optimum brand), Supino said its Suddenlink markets could be the “sneaky secular growth driver” for the company.

“Amidst steadily rising demand for bandwidth – a powerful trend long before COVID19 – and with relentless cable upgrades overwhelming DSL competition, small town cable has become a quasi-monopoly on Internet service,” Supino wrote. He added that despite lower purchasing power and dispersed service territories, the rising demand for broadband in rural markets and Suddenlink’s low service penetration rates creates a long-term growth opportunity.

Supino said another opportunity lies in the completion of its fiber buildout, which is expected by the end of 2023. 

“Assuming the project will be completed by year end 2023, 2024 capex should decline by over $300 million year-over-year to our $1 billion forecast, or 9% of revenue,” Supino wrote. “While this percentage may seem hopeful to experienced cable analysts, we point out that Altice's capex minus fiber investment benefits from best-in-class population density and penetration levels. ”

New York — The cable industry seems destined for wired-wireless convergence as consumers demand access to services in the home and on the go, but how MSOs will get there is far from certain.

Creating a mobile virtual network operator (MVNO) in partnership with an existing wireless carrier might work for some, and there’s still plenty of speculation that a large player like Comcast could someday make a move to buy a T-Mobile or Sprint if the opportunity (and the price) were right.

Future wireless and mobile strategies for the cable industry, as well as game-shifting 5G technologies, were among the key themes discussed at last week’s Inform[ed] Wireless conference in New York, an inaugural one-day event hosted by CableLabs.

FASTEST-GROWING SEGMENT

Wireless and mobility are becoming increasingly important for cable, Phil McKinney, CableLabs’s CEO, said, noting that those areas have become the fastest-growing segment at the R&D organization.

Beyond the ongoing Cable WiFi initiative, which continues to deploy hundreds of thousands of hotspots in various public and quasi-public venues, several MSOs around the world have worked out MVNO deals (General Communication Inc. of Alaska and Liberty Global, for example), operate their own mobile networks (Rogers Communications of Canada), or are mobile carriers at their core but are also expanding into cable (Vodafone, which now owns Kabel Deutschland of Germany and Ono of Spain).

“We’re seeing this converged network,” McKinney said, adding that consumers “don’t want that broadband service to stop at the front door.”

But how those strategies will evolve for many MSOs, particularly in the U.S., is still being sorted out and debated — a topic taken on by a panel led by two top industry analysts.

Though the wireless and mobile sector is heated and saturated, it gives cable a prime opportunity to seek opportunities that are adjacent to their existing businesses for a market that is about 2.5 times larger than the one cable’s serving today.

“To me, it looks like an absolute no-brainer,” Jonathan Chaplin, managing partner at New Street Research, said during the panel discussion.

He said he sees several ways cable MSOs can get into that market, including a WiFi-only approach; a WiFi-and-MVNO play; network sharing deals; building a network from scratch; and acquiring another provider.

Chaplin said WiFi-only is not a product. “My apologies to Cablevision [Systems],” he said, noting that the MSO has been travelling that path with its Freewheel service. “It’s a niche product that goes after a very small part of the opportunity … That’s not exciting.”

And building a network from scratch is too expensive. Cox Communications tried it, at great expense, and eventually threw in the towel. That leaves MVNO-focused strategies and acquisitions and partnerships among the most viable options for some MSOs.

Comcast already has the MVNO option available to it through deals with Sprint and Verizon Communications, and has begun to trigger its arrangement with Verizon, but has not announced what it will do next or when.

Chaplin said Comcast has little to lose here.

“It makes all the sense in the world to start leveraging that MVNO and to start testing the market,” he said, noting that Comcast could, for example, use that to learn more about how to position products, determine if it needs to have a big retail presence and how deeply it would need to subsidize the handsets.

“The economics are attractive enough,” Chaplin said, but warned that the MVNO structure Comcast would have to live with doesn’t give it much control over the product. “That’s not an ideal long-term strategy, either.”

But Comcast could use it as a “stepping stone” for a longer- term approach that gives it more control of the product and the relationship with the customer.

And, because of that, Chaplin said he also thinks it makes sense for Comcast to make a play in the upcoming spectrum auctions. If Comcast comes away with spectrum, particularly with blocks that provide national coverage, it would be in position to broaden its options.

Paul de Sa, vice president and senior analyst at Bernstein Research, held that cable is already a dominant carrier of residential wireless traffic, given its WiFi coverage in and out of homes.

But he also agreed that the cash for wireless is in the cellular/mobile industry, though cable operators can make some scratch here and there by providing non-subs with paid access to their WiFi networks or using WiFi to sell higher-speed broadband tiers. Plus, cable has already established a nice revenue stream with its wireless backhaul business.

While cable has a decent default position (doing nothing new), de Sa said during the panel that he also thinks MSOs must weigh the risks and rewards of entering the cellular mix having missed the growth market, and of jumping into a sector that is dominated by the four major carriers.

“It’s difficult for fringe players to disrupt that [mobile market],” de Sa said, noting that cable would be pressed to enter that arena “without any compelling consumer proposition” given little evidence that a bundle with a wireless component gives much value to the provider. And simply competing on price won’t be enough to move the needle much in what’s now a saturated market.

ON THE FRINGES

He also said that while there aren’t any right or wrong answers yet, aligning with Verizon under an MVNO deal is the obvious path for some operators despite the limitations with respect to product control that presents, as is aligning with a “fringe” player, like Google is doing with T-Mobile and Sprint for its Project Fi hybrid cellular/WiFi offering.

Buying a fringe player and attacking the duopoly of AT&T and Verizon is yet another option, if the price is right.

Any one of those choices is appealing, de Sa said, though “none are overly compelling.”

“Staying neutral,” he added, “is also not a bad option.” In a panel later in the day, Rob Howald, senior vice president at Comcast, toed the company line when asked about the MSO’s intentions with respect to the coming 600-MHz incentive auction.

Comcast, which previously said it will participate in the auctions, is “assessing [its] options carefully in that space,” Howald said, adding that the MSO is still doing its homework on any possible strategies it might go with.

But on a broader level, he said, any focus on cellular by Comcast is to “make sure that existing services are well complemented outside the home,” rather than worrying about some “magic” around a quad play offering that was once under consideration by various cable operators.

SIDEBAR: The Slow Road to 5G

NEW YORK — 5G, an emerging standard that represents a quantum leap over 4G/LTE, promises to enhance current mobile and wireless experiences in many ways.

A big one is a jump in the ability to deliver at least 10 Gigabits per second per cell. 5G will also facilitate the so-called Internet of Things, as well as critical apps and communications services that require super-low latency, such as autonomous, self-driving vehicles and other high forms of robotics.

Technically speaking, that low-latency element will be pushed forward by virtualization techniques that will allow for a more distributed network in which software apps are running at the edge.

5G standards are still being developed, and deployments aren’t expected to be underway until at least 2020.

Though some of those use cases can employ LTE, 5G offers a combination of capabilities that hit them all, Bob Berner, chief technology officer of Rogers Communications, said during a mid-day keynote at the Inform[ed] Wireless conference.

But the big question, he said, is whether there’s enough money in those markets to justify the economics in these high-band frequencies that can work over short ranges.

“Spectrum is the real estate of the mobile business,” Berner said. But the wireline business will also expand — a good sign for cable — because those wireless hubs still need to be connected to high-capacity terrestrial networks.

Berner also said 5G has the potential to play a role in cable operators’ networks, suggesting that a 5G small cell at the edge of the wired network could prevent having to run fiber all the way to the home.

In a follow up panel, Bjorn Ekelund, head of device technology and ecosystem at Ericsson Research, agreed that 5G is being viewed as a potential fiber replacement.

Another new characteristic that 5G will bring is the idea of “network slicing” — the ability to micromanage the network for specific use cases as they arise.

And though 5G standards are not yet cooked, “5G is really happening,” Ekelund insisted, pointing out that Ericsson has 21 field trial agreements in place with carriers.

In the meantime, 4G still has plenty of life left in it and will be complemented by 5G, Timothy Burke, vice president of strategic technology at Liberty Global, said.

Sidebar: Small Cells Equal Big Opportunity

New York — Even if cable operators stay out of the mobile service game to a large degree, they are well positioned to continue to make hay on backhauling them with their hybrid fiber/coax and fiber-only infrastructures, particularly with the increased need for small-cell infrastructures and 5G technologies on the horizon.

Small cells are factoring in as carriers and venues seek out ways to handle big, spikey data loads in concentrated, heavy-traffic areas that aren’t supported well by the macro cellular network.

Crown Castle owns 40,000 tower locations in the U.S. and, as part of a market expansion, now supports about 16,000 small cells, Phil Kelley, the company’s senior vice president of corporate development and strategy, said.

And that demand will increase as mobile moves into 3.5-GHz and 5-GHz spectrum.

“It’s backhaul, power and access,” Jeremy Bye, vice president of carrier and wholesale at Cox Communications, said, noting that the MSO launched a small-cell service last year. “When you have all of those, it really fits well into our business model.”

Bernstein Research has been outspoken in its bullishness on Google Fiber’s prospects compared to other Wall Street analysts, and in the wake of potential expansions into Los Angeles and Chicago, the investment research firm now wonders if it’s not being bullish enough.

“We have never said that Google Fiber will certainly be large or profitable," Bernstein Research held in a research note issued Thursday under the title: Google Fiber - Have We Been Too Bearish? "Instead, we think it could very well be profitable, which is in stark contrast to the Street's unambiguously negative view,”

Historically, the research group has held that Google Fiber faces a lengthy buildout process that won’t reach more than 10 million homes passed in the next few years, unless it goes after some major cities and surrounding metro areas.

That’s exactly what Google Fiber is now contemplating as it explores (but has yet to commit to) deployments in L.A. and Chicago – the biggest possible undertaking for Google Fiber so far.

If Google Fiber were to go full-throttle build out 75% of those markets over the next five years, it would pass 6.3 million homes and 1.6 million business locations there alone, Bernstein Research said, noting that the move would still limit Google’s exposure to FiOS, which is only deployed to a small piece of L.A.

Google has not formally entered either of those markets, but the prospect is giving Bernstein Research some second thoughts about its future scale. “Our high end estimate of 20-25 million homes passed by Google Fiber may prove less aggressive than we thought,” it said.

In October, the firm estimated that Google Fiber’s network passed about 427,000 homes and 96,000 business locations, primarily in Kansas City and Provo, Utah, and that it had signed up as many as 120,000 paid subs.

Despite AT&T’s recent, more aggressive commitment for GigaPower, its fiber-based gigabit platform, Bernstein Research still thinks Google Fiber poses a bigger threat to cable’s broadband business.

While DOCSIS 3.1 will enable MSOs to deliver “comparable headline speeds” to Google Fiber via widely deployed HFC networks, the greater concern is that “Google's entry will make it difficult to raise broadband prices to the extent possible when competing against a more cooperative telco provider.”

While it remains questionable as to whether Google Fiber can scale up its network deployments and put the hurt on incumbents over the long term, a new study from Bernstein Research suggests that Wall Street “is too dismissive” of the initiative's true potential.

“We have increased conviction that Google’s main motivation to deploy Google Fiber is its belief that it has a better-than-good chance to build a profitable local-access competitor,” Carlos Kirjner, a senior analyst with the firm, noted in a study, which included fresh data from recent door-to-door surveys in some Google Fiber markets.

He also reiterated his view that Google Fiber’s primary aim is not to influence policy makers or to force cable operators and telcos to accelerate upgrades, but does acknowledge that incumbents such as AT&T, Comcast, CenturyLink and Cox Communications have moved ahead with targeted fiber-based gigabit offerings.

Kirjner is also aware that Google’s deployment so far “has been slow and limited,” estimating that Google Fiber currently passes about 427,000 homes, and 96,000 business locations, primarily in Kansas City and Provo, Utah.

 Even if Google were to build out in all cities it has committed to or considering, it would still only pass 4.3 million homes – “still a small portion of the total market," he wrote. 

The report also estimates that Google fiber has between 100,000 to 120,000 paid subs, “a very small number that likely plays into the incumbents' default belief that deploying and operating wireline networks at scale is much harder than commonly thought.”

But incumbents, Kirjner warned, should not get “too complacent” in the face of those figures, holding that Google Fiber could nab between 40% to 50% market share in its areas, which could have a deeper impact if Google does decide to expand aggressively.

Google Fiberrecently committed to launch service in San Antonio, Texas, building on deployments in Kansas City; Provo, Utah; and Austin, Texas, and deployments that are underway in Salt Lake City; Nashville, Tenn.; Atlanta; Charlotte; and Raleigh-Durham. It’s also exploring expansions in three more cities – Irvine and San Diego, Calif., and  Louisville, Ky.

Kirjner also speculated a scenario in which Google Fiber could deploy to 15 million to 20 million homes within six to eight years, which would represent a “non-trivial commitment” that is “far from impossible” considering Google’s means.

Bernstein’s data also shows that Google Fiber has performed well in the markets where it has a presence.

Based on a past door-to-door survey in Google “Fiberhoods” in Kansas City, Bernstein estimates Google Fiber has achieved a penetration rate of about 20% of homes passed within one year of turning on service, “putting it well on the way to exceed 40% of homes passed and realize attractive ROIs.”

Bernstein repeated that test in Provo, via a survey of 850 households in all seven Fiberhoods in Provo, and found similar results (penetrations of 20% to 25% for paid Google Fiber services – a larger portion of homes take Google Fiber’s free high-speed Internet service that delivers 5 Mbps down and 1 Mbps upstream). The survey also found that 44% of Google Fiber subs in Provo were previously with Comcast, and 8% did not previously take a broadband service. Google Fiber entered that market in 2013 via its acquisition of iProvo's assets.

Those results, the analyst said, “reinforce our view that Google Fiber could generate attractive ROIs, that incumbents stand to lose significant market share where Fiber is deployed, and that Google’s continued expansion of Fiber…is a non-trivial possibility.”

Of the telcos, Kirjner sees AT&T and CenturyLink to be “particularly vulnerable to Google targeting” given their sizable wireline footprints and the difficulty they’ll have executing scaled gigabit rollouts.

Cable, he said, is better positioned to defend with the DOCSIS 3.1, which will bring multi-gigabit speeds to its widely deployed HFC networks. Rollouts of D3.1 are expected to start in 2016, and ramp up considerably in 2017.  But MSOs will be challenged to meet Google Fiber’s “disruptively low price” ($70 per month for the standalone 1-Gig offering).

Under the firm’s the "aggressive expansion" scenario for Google Fiber, Bernstein estimates that Comcast and New Charter (which includes the proposed acquisitions of Time Warner Cable and Bright House, could tangle with Google Fiber in 15% of their addressable market and be in position to lose about 10% of their current customer broadband subs -- “[a] material, although not ruinous, negative impact,” Kirjner wrote.

And incumbents are also dealing with a competitor that gets high satisfaction ratings. According to Bernstein, the median score for Google Fiber satisfaction was nine (on a 1-10 scale), and only 3% reported less than a five.