With the two largest U.S. cable companies — Comcast and Charter Communications — expected to release third-quarter results later this week, investors are bracing for a big slowdown in broadband subscriber growth. But at least one analyst believes the decline won’t be quite as jarring as some may expect.

In an Oct. 20 report, Evercore ISI media analyst Vijay Jayant wrote that while Q3 broadband subscriber increases will be lower than they have been in the past few quarters, it won’t be that dramatic of a decline.

This comes just as cable operators are preparing to release their Q3 results. Comcast is expected first out of the gate, with its Q3 earnings report due on Oct. 28, followed by Charter (Oct. 29), Altice USA (Nov. 4) and Cable One (Nov. 4). 

Also Read: How Slow Will The Broadband Slowdown Be? 

“Broadband growth may be slowing, but we don’t think it’s dropping off a cliff,” Jayant wrote, adding that cable stock prices have dropped considerably since Comcast said it was seeing high-speed internet subscriber additions off a little bit in August. “We don’t believe that these comments indicate that the broadband market is experiencing a dramatic shift, however, and expect continued healthy subscriber growth, with nearly 900,000 subscriber net adds in 3Q, of which we expect cable to capture [about] 75%.”

While Comcast’s admission that broadband growth was slowing did send the sector down a bit, cable stocks fell hard after Altice USA CEO Dexter Goei told the Goldman Sachs Communacopia conference his company would lose between 15,000 and 20,000 broadband customers in Q3. In the past month (Sept. 22 to Oct. 22), cable distribution stocks are down about 6%, with Altice USA falling the hardest (down 26.2%), followed by Cable One (down 6.7%), Comcast (down 2.8%) and Charter (down 2.7%).

Also Read: Analyst Says Telcos Better Positioned to Chip Away at Cable’s Broadband Lead

Jayant’s optimism is fueled by the relative scarcity of strong new broadband competition — he estimated that only 35% of cable households have a fiber-to-the-home competitive option, and fixed wireless availability is still in the low single-digit percentages. In addition, recent pricing changes for cable wireless offerings (which can only be sold with a broadband connection) should help stabilize high-speed internet subscriber rolls.

Also Read: Broadband Slowdown Forces Analyst to Go Negative on Cable Sector  

On the cable side, Jayant was encouraged by low non-pay and move churn. The analyst wrote that government programs like the Emergency Broadband Benefit Program (EBBP) and child tax credit payouts may have helped keep non-pay churn in check, while move churn, despite the red-hot housing market, may be lower due to renters who have opted to stay put. Jayant noted that as much as 60% of annual move churn is due to renters. 

As a result, Jayant estimates that Comcast will add about 280,000 residential broadband customers in the third quarter, less than half the 617,000 customers it added in the same period last year during the height of the pandemic. He predicted Charter would add about 325,000 broadband customers (compared to 494,000 additions in Q3 2020) and Altice USA would lose 20,000 customers (versus adding 28,000 in Q3 2020). Cable One, which added 28,000 broadband customers in Q3 2020, will see that slow to 15,000 additions in Q3 2021, according to Jayant.

Slow Start to Q3

Overall, the Evercore analyst expects cable broadband growth to slow by about 42% in Q3 2021 to 665,000 additions from 1.36 million in Q3 2020. Those numbers should pick up in the fourth quarter — Jayant estimated that cable would add 710,000 broadband customers in Q4 2021, compared to 859,000 additions in Q4 2020. For the full year, cable broadband customer additions will be down about 33% to 3.1 million from 4.6 million in 2020. 

Video subscriber erosion will continue, according to Jayant, who expects pay TV to lose about 1.7 million customers in Q3 2021, up by 300,000 sequentially. For the full year, Jayant estimates cable operators will shed about 3.2 million video customers, up from a loss of 2.4 million in 2020. While virtual MVPDs will take up some of that slack — Jayant predicted they would add about 1.5 million video customers in 2021 — it won’t be enough to stop the bleeding. Jayant predicted that total pay TV subscriber losses, including cable, vMVPD, satellite and telco operators, will rise 1% to 4.72 million from 4.68 million in the prior year.

With the three top publicly traded cable operators expected to report second quarter results later this week, all eyes will be on whether the slowdown in broadband subscriber growth will be larger than, less than or equal to expectations.

Cable broadband growth broke records in 2020, as the pandemic forced most Americans to work from home and buy faster and faster tiers of service. The expansion of streaming video, as services like Disney Plus, HBO Max, Paramount Plus and Discovery Plus chewed up bandwidth normally occupied by SVOD stalwarts like Netflix, Amazon Prime Video and Hulu, also increased demand. 

When the dust cleared, cable operators added about 5.6 million broadband customers in 2020, more than double the 2.5 million added in the previous year. Most operators warned that subscriber growth would slow this year and probably next, most likely to 2019 levels. That appeared to hold true in the first quarter, when total cable broadband additions were about 3.8 million, according to Wells Fargo Securities media analyst Steven Cahall.

In a research note, Cahall added that as Q2 is usually a seasonally weaker period, overall broadband growth is expected to be at about 0.6%. He noted that while this is a 400 basis point decline from the previous quarter, it would still be the highest Q2 growth rate in five years (excluding 2020). 

Cahall is one of the more bullish analysts regarding broadband growth, noting that the segment outpaced expectations in the first quarter, as many operators said trends associated with COVID-19 continued. While Cahall still expects a deceleration in growth for the full year in 2021 (3.5%, compared to 5.6% in 2020), he notes it is still higher than the growth rate in the prior four years. 

“Commentary from most of our covered companies suggests subscriber gains similar to 2019 levels, with a back-half weighted growth profile,” Cahall wrote.

Altice USA is the first major publicly traded operator out of the box, expected to report its Q2 results on July 28 after the market closes. Analysts are expecting the operator to add between 10,000 and 28,000 broadband customers in the quarter, compared to Q1 2021, when it signed on about 12,000 high-speed internet customers.

Altice USA, which operates as Optimum in its East Coast markets and as Suddenlink Communications in the Midwest, has some of the highest broadband penetration rates in the industry, which has limited its subscriber growth in the past. Earlier this month the company said it would rebrand its wireless service as Optimum Mobile across all of its systems, a move it said was the first step in rebranding all of its products under the Optimum name. 

Also Read: Analyst: After a Strong 2021, Cable’s Broadband Trajectory Could Reverse in 2022 

At Comcast, which is scheduled to report its Q2 results on the morning of July 29, analysts believe that broadband additions could come in at nearly half the level the company reached in Q1. Cahall estimates that Comcast will add about 260,000 residential broadband customers in Q2, while Evercore ISI Group media analyst Vijay Jayant and Bernstein media analyst Peter Supinio are in agreement that Comcast should add about 275,000 residential and commercial broadband customers in the period. Still, that’s nearly half the 461,000 residential and commercial additions the company added in Q1.

Charter is expected to release its Q2 results on July 30, and Supino, who downgraded the stock to “market perform” on July 12, expects the nation’s second largest cable operator to add about 250,000 broadband customers. That is about in line with Cahall’s estimate of 246,000 additions. Jayant predicts the company will add about 265,000 high-speed data customers in the period. 

For the full year, analysts are pretty much in agreement that growth will be slower than in 2020, with some predicting it could be even less than in 2019. 

MoffettNathanson expects the top three operators to add about 2.4 million broadband customers in 2021, around half a million subscribers behind the 2.9 million they added in 2019. Supino estimated that overall growth would be about 2.7 million. Supino predicted that Charter would have the biggest drop in growth over the next two years -- he estimated the company would add about 1 million broadband subscribers in 2022 and under 1 million in 2023 -- spurred by expected increased regulatory scrutiny and stepped up competition from AT&T and T-Mobile.

T-Mobile has said it expects to add 7 million to 8 million 5G wireless broadband customers by 2025, implying additions of about 1.5 million annually. While Supino wrote that wireless broadband can’t match fiber-to-the-home, he believes a new segment is emerging in the market. 

“Consumer markets naturally segment ‘good, better, best,’" Supino wrote. “Historically, the enormous up-front capital costs and logistical challenges of supply growth have inhibited the segmentation of the broadband market. We believe the natural segmentation of the broadband market will provide more consumers with an opportunity to pay a lower price for ‘good enough’ broadband.”

As cable’s earnings season kicks off this week with Comcast reporting first-quarter results on Wednesday (April 27), analysts think tallies for the typically strong period will see big broadband and video subscriber gains for operators.

Cable operators have turned the corner on basic- video subscriber losses in the past several quarters, with Charter Communications and Time Warner Cable reporting their first basic-video customer gains in nearly a decade last year. In this year’s first quarter — typically a strong season for multichannel-TV subscriptions — the Big Three are expected to show video growth, while all four publicly traded cable operators (including Cablevision Systems) are expected to show gains in broadband customers.

Morgan Stanley media analyst Ben Swinburne said overall pay TV net additions should be down 50%, but that’s mainly due to satellite-TV subscriber losses and declining growth at the telcos. Cable operators, he said in a research note, should see gains via the likes of Comcast, Charter Communications and Time Warner Cable.

‘BIG 3’ GAINS IN SIGHT

Evercore ISI Group media analysts Vijay Jayant and David Joyce also predicted that Comcast, Charter and TWC would post video-subscriber gains, but said the overall pay TV video losses would be more moderate: about 80,000 in the period, compared to a loss of 60,000 in 2015.

Jayant and Joyce in a note said Q1 2015 was the first time pay TV showed a loss of video subscribers in the first quarter, which is typically strong despite being prime rate-increase time. The trend toward overall losses is expected to continue, the analysts said, while cable companies for the most part are expected to show gains.

Swinburne expects Comcast to gain 35,000 video customers while Charter and TWC should add 1,000 and 29,000 respectively.

Cablevision, which has struggled with aggressive discounting by Verizon Communications in its footprint, is expected to shed 23,000 video customers, according to Swinburne.

Jayant and Joyce believe Cablevision will shed about 15,000 video customers in the quarter, followed by gains at Comcast (40,000), Charter (15,000) and TWC (20,000). The analysts see most of the video losses being weathered by smaller operators, with Cable One expected to lose 22,000 video customers in the period, Suddenlink Communications — purchased by Altice in December — down about 10,000 video customers and “other” operators losing a collective 100,000 video customers.

Jayant and Joyce believe Charter will get more aggressive after its $78.7 billion deal to acquire Time Warner Cable is approved, after which he predicts the company will unleash “an arsenal of marketing campaigns.”

Already during Q1, Charter has continued its strategy of targeting satellite-TV subscribers and was giving away a free DVR to new tripleplay subscribers, the analysts said in their report.

On the broadband side, growth is expected to slow because of sluggish telco additions, but cable should continue to exert its dominance in the space.

Overall, Swinburne predicts 775,000 broadband additions, down slightly from last year as AT&T’s U-verse Internet loses 5,000 subscribers and Verizon’s Fios Internet gains 6,000, down from 41,000 in Q1 2015.

Swinburne predicted cable would grab 95% of total broadband additions in the period. Leading the charge will be Comcast (373,000), Charter (123,000), and TWC (227,000).

On the telco side, broadband additions are should continue to slide, with AT&T shedding 5,000 customers, compared to an addition of 94,000 in 2015.

Verizon, which released first-quarter results last Thursday morning, surprised many analysts on the broadband front, reporting 98,000 Fios Internet additions in the period, below the 133,000 additions of last year but still above the 6,000 that Swinburne predicted. Fios TV adds were about even with last year at 36,000, compared to 35,000 in 2015.

On the satellite side, AT&T’s DirecTV unit is expected to report 170,000 net new video subscribers in the quarter, fueled by its parent’s efforts to migrate U-verse TV customers over to the satellite platform. Earlier this month, AT&T debuted a satellite, broadband and wireline phone triple play for $90 per month that could drive additional growth.

CABLE’S BROADBAND HEFT

At Evercore ISI Group, Jayant and Joyce estimated that broadband additions will grow by 1.1 million customers in the first quarter, with cable accounting for more than 1 million of those adds. Telcos, the two analysts estimate, will account for about 50,000 broadband additions.

At Dish Network, which reported its results April 20, net new subscriber losses were 23,000 in the period, but that includes subscriber gains from its Sling TV over-the-top product. Moffett-Nathanson media analyst Craig Moffett estimated that Dish lost about 158,000 legacy satellite TV customers in the period, its worst first quarter ever.

Sling TV, Dish’s over-the-top service, grew by about 135,000 subscribers, though. Sling TV, by Moffett’s reckoning, has about 658,000 video subscribers, in line with estimates. Swinburne estimated legacy satellite losses could be in the 110,000 to 160,000 range.

It looks like cord-cutters may not have the cable sector to kick around much longer.

While overall pay TV subscriber numbers were down in the fourth quarter — typically a seasonally strong period — customer declines came from losses on the telco TV side. Cable operators, long the target of consumer consternation over high prices and poor service, reported video customer gains for the period.

Not all of the news was good. Overall pay TV subscriber numbers were down for the first time in the fourth quarter, indicating that customers are still cutting the cord. It also was the fourth consecutive quarter of overall losses in the pay TV sector.

On the bright side, though, cable outperformed the overall pay TV sector for the first time since 1994.

SECTOR DOWN OVERALL

MoffettNathanson principal and senior analyst Craig Moffett, estimated pay TV, excluding subscriber results from Dish Network’s over-the-top service Sling TV (which Dish counts within its overall satellite-TV results), lost about 49,000 video subscribers in the fourth quarter. With the Sling TV results factored in, the pay TV business is pushed into the black with a gain of 80,000 video customers, although that growth is still down from previous years.

Other analysts had slightly different numbers. Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak estimated that pay TV added about 105,000 video customers in the period, but he also included the Sling TV results. Evercore ISI Group media analysts Vijay Jayant and David Joyce estimated a pay TV loss of about 123,000 in the period, not taking the Sling TV results into account.

Cable, long pay TV’s laggard, actually ended the quarter on a positive note. MSOs added about 102,000 video customers in the period, according to Moffett, fueled by gains at Comcast (89,000), Time Warner Cable (54,000) and Charter Communications (33,000).

In contrast, the telco-TV sector, punished by heavy losses for AT&T’s U-verse TV (down 240,000), lost about 224,000 video customers. Satellite-TV providers gained about 73,000 net new subscribers.

In a note to clients, Moffett said the cable growth came in a period of sluggish new household formation. While that shows that cable’s growth is likely coming from its competitors, it also shows a dramatic change of fortunes among the players in the pay TV business in a very short period of time.

It wasn’t long ago that cable operators were considered to be a dinosaur business heading for extinction.

Overall full-year 2015 cable losses slowed to 1% from 2.6% in 2014, while satellite subscriber losses accelerated sharply to -1.3% in Q4, compared to a 0.1% gain in the prior year, according to Moffett.

The sharpest dropoff, though, came in the telco sector. According to Moffett, telco TV reported a 1.3% video customer deficit in Q4, compared to a 9.9% gain in the previous year.

“The improvement in cable is dramatic,” Moffett wrote. “And the deterioration in telco is breathtaking.”

While a big part of that telco TV decline is probably due to AT&T’s plan to migrate its U-verse TV subscribers to satellite provider DirecTV (which AT&T purchased in July), Moffett said that isn’t the whole story. Growth in the satellite sector slowed in the fourth quarter to 73,000 subscribers, compared to 86,000 in the same period in 2014, despite DirecTV having AT&T’s marketing engine behind it.

While broadband was a big reason for cable’s Q4 gain, Moffett noted that the sector has been steadily reducing its losses since 2010. According to Moffett’s research, cable has reduced quarterly subscriber losses from a peak of 3.5% in Q2 2011 to a 1.1% decline in Q4 2015.

DATA STILL A STRENGTH

In a note to clients, Wlodarczak wrote that cable again dominated the broadband market in Q4, despite price increases implemented in some systems.

According to Wlodarczak, net new data subscribers (including dialup) increased 19% in the quarter to 850,000. Cable again had its best share result ever, taking all net new data additions (about 980,000 additions, a 31% increase), while telcos saw a negative data result for the third straight quarter, losing about 40,000 customers.

“The cable investment thesis is all about data; cable successfully managed the entrance of the RBOCs into video and they should successfully manage through changes to the pay TV model,” Wlodarczak wrote, adding that cable’s broadband dominance “provides the ultimate hedge for cable against the effects of potentially accelerated pay TV losses and slimmed-down pay TV bundles.”

CHART: Pay As You Go

Pay TV subscriber losses have increased over the past four quarters, while cable TV ended the year on a high note.

                                                     Q1 2015      Q2 2015        Q3 2015         Q4 2015

Total Cable Adds (Losses) . . . . . . (105) . . . . . .(337). . . . . . . (200) . . . . . . 102

Total Satellite Adds (Losses) . . . . .(74). . . . . . .(284) . . . . . . .(173) . . . . . . .73

Total Telco Adds (Losses). . . . . . . . 136. . . . . . . .(3). . . . . . . . . (53). . . . . . (224)

Total Pay TV Adds (Losses) . . . . . .(44). . . . . . .(624) . . . . . . (426) . . . . . . (49)

SOURCE: Company reports, MoffettNathanson estimates. Numbers in thousands.

Cable operators made the case for the bundle in the third quarter.

In reporting their best basic-video subscriber performance in nearly a decade, U.S. MSOs cast some serious doubt on the actual impact of cord-cutters — young consumers who’ve dropped their pay TV subscription for a broadband connection — and of online content.

Comcast started things off, reporting a Q3 loss of 48,000 video customers, nearly half of what it shed in the same period last year and its best Q3 performance in nine years. Up next was Time Warner Cable, which reported a loss of 7,000 basic-video customers in the period (its best Q3 since 2006); and Charter Communications, which tallied a gain of 12,000 basic-video customers for its first positive growth since Q4 2014.

Not all cable operators have reported their third-quarter numbers yet — Cablevision Systems is scheduled to release results Nov. 3, with other smaller operators following suit in the coming weeks. But Comcast, TWC and Charter represent about 70% of all U.S. cable-TV homes.

So far, the numbers are in sharp contrast to the second quarter, when sector-wide declines sent stocks into a tailspin over fears that cord-cutters were taking a bigger bite out of pay TV companies than originally expected. While there are still some question marks left, cable has more than held its own.

Collectively, the three largest cable operators shed 43,000 basic-video customers in the third quarter, about one-third of the 121,000 they lost in the second quarter.

“Clearly, 2Q ’15 was not a negative inflection point for the industry,” Evercore ISI Group media analysts Vijay Jayant and David Joyce wrote in a research note.

MoffettNathanson principal and senior analyst Craig Moffett went further out on a limb: “It’s time to change the narrative about cord-cutting.”

It’s not that analysts believe cord-cutting has gone away, just that it is taking customers from sources other than cable. And Moffett said he believes cable’s video resurgence is due to a combination of its better content offerings and its longstanding broadband dominance — high-speed Internet additions at the three top cable operators were all ahead of the prior year, while AT&T lost 100,000 U-verse Internet customers, and Verizon Communications’s FiOS Internet additions were down.

“Cable’s two-way architecture and Comcast’s best-in-class user interface and VOD libraries are emerging as genuine sources of competitive advantage,” Moffett wrote in a research note.

Charter CEO Tom Rutledge had a simpler answer. “Our competitors continue to aggressively promote products at low price points,” he said on Charter’s Q3 earnings call. “We think, fundamentally, we have better products than they do.”

So far, cable has resisted playing the price-cutting game. And though promotions like the $90 triple play have brought in customers, operators are careful to lessen the shock once those promotions expire.

On TWC’s earnings call, chief operating officer Dinni Jain said the company made a concerted effort not to repeat past mistakes. Promotional customers are now told up front that prices will rise after the 12-month promo period expires, and those increases are now about $20 per month, compared to the muchstiffer hikes of the past.

“I think a combination of that transparency on the front end coupled with really working hard to nail the customer experience through the life of that first 12 months will give us a much better churn profile,” Jain said.