Just months after it pressed the accelerator on its planned fiber network buildout, Altice USA said it lost about 13,000 residential broadband customers in Q1, driving revenue down 2.3% to $2.42 billion in the period and cash flow down 7.7% to $991.7 million.

Altice lost about 3,000 broadband subscribers in 2021, as competition from Verizon and delays in its fiber rollout affected the business. In February, Altice USA said it would accelerate its fiber build-out plans, planning to pass about 6.5 million homes by 2025.  

Altice said it is making progress on the fiber rollout, adding that it added 146,000 new fiber-to-the-home (FTTH) passings in Q1, bringing the total number of homes passed with FTTH to 1.3 million. The company said it plans to add another incremental 1.3 million FTTH passings in 2022.

The company also is moving forward with its edge-out program, extending its network to 42,000 additional homes in Q1 and to 273,000 total passings in the past 12 months. 

While Q1 losses were higher than even the most skeptical analyst expected — most estimated growth would be flat to down by about 3,000 customers. In a conference call with analysts to discuss results, Altice USA CEO Dexter Goei said the performance was more due to lower gross additions and slower household move activity. While competition was somewhat of a factor in its Suddenlink territories in the Midwest, Goei said churn is stable in its eastern Optimum markets and its competitive stance with Verizon’s Fios product is improving on a quarter-over-quarter basis. 

Still, Goei was reluctant to say that Altice will be able to turn around its broadband deficit this year.

“We definitely believe we are going to be growing subscribers in the second half of this year,” Goei said on the call. “I can’t tell you where the map will end up and whether we will be positive [for the full year] or not. But we’re clearly pushing to the positive and we’ve got some good momentum in terms of some of the initiatives we’ve been working on for the last six months.”

For instance, Altice said that it added about 11,000 fiber-to-the-home customers in the markets it has upgraded and plans to roll out a multi-Gig product in the second quarter, which should attract heavy data users — the company said the average speed taken by customers is 363 Megabits per second, and its broadband-only customers consume an average of 630 Gigabytes of data each month. Also, Goei was pleased with its mobile additions in the quarter — about 12,000 customers — coming after the company renegotiated its MVNO agreement with T-Mobile earlier this year. Those moves, coupled with its rebranding and improved customer experience campaigns, are anticipated to have a positive effect on growth. ▪️

With practically every telecom and cable company moving to step up their fiber buildout plans over the next few years, MoffettNathanson senior analyst Craig Moffett wondered last Friday if the recent acceleration in construction was indeed too much, and whether telcos and cable companies will be able to justify the cost.

There is no question that broadband subscriber growth is slowing down, and that the remedy for both telco and cable providers appears to be investing more in building out and expanding their fiber reach. It makes sense in that the only way left for most operators to grow broadband is to either expand their footprint to homes that don't currently receive service, and/or boost new home growth. Since providers have no control over the latter, the former has been a big focus. 

According to Moffett‘s report, over the past 20 years about 30% of the U.S. population has been overbuilt by fiber networks. But that coverage is expected to rise to 60% in the next five years and possibly 80% by 2033, as nearly every telco and cable operator has put forth plans to build new or expand existing networks. Based on announcements of fiber-to-the-home projects, Moffett estimated, telcos will add nearly 40 million new fiber passings between 2020 and 2025 for overbuilds alone. 

“If fully completed, the additions would amount to an additional 25% of housing units (assuming 1% growth in total housing units per year), nearly doubling the current overbuilt cable footprint,” Moffett wrote.

Buildouts Come with Risks

But Moffett warned that the success of those projects is reliant upon buildout costs remaining low, penetration rates and average revenue per user (ARPU) numbers staying high and capital to fund the projects being easily available and cheap. 

“Our conclusion is that there is simply too much enthusiasm for too many overbuilds,” Moffett wrote. “Some, it seems clear, will end in disappointment (or worse).”

Though buildout costs are relatively low now, Moffett noted that they probably won’t be as demand increases. Further pressuring companies is a shortage of available labor to build the networks that is only going to get worse as the number of projects increases.   

Also figuring importantly into the overall cost of a fiber build is whether it will be aerial or underground, and the housing density of the area it will ultimately serve. Moffett pointed to industry benchmarks that put the average cost of building aerial plant at about $25,000 per mile, with buried fiber costing about twice that. But that depends on a relatively large number of homes per mile, and the numbers can vary widely.

For example, Verizon Communications’ fiber network passes about 849.2 homes per mile, while Windstream passes about 126.4 homes per mile. The national average is about 37.3 homes per mile, but that too falls off substantially after the larger cities are taken out of the mix. According to Census data, the densest 10% of housing units are in areas where the homes number 10,100 homes per mile. The numbers fall sharply in the second 10% — 3,756 homes per mile and the last 10%, just 4 homes per mile.

Telcos tend to build fiber in more dense areas than their overall footprint. According to Moffett, based on Federal Communications Commission broadband deployment data, AT&T, Verizon, Frontier Communications, Lumen Technologies, Apollo, Ziply, Cincinnati Bell, Shenandoah Communications, and Windstream cover land areas averaging about 134 homes per square mile. Their fiber footprints average around 534 housing units per square mile.

Geography Matters

And then there is the geographical makeup of the area a company is building out. According to Moffett, the rockier the terrain, the costlier, and much of the less dense areas that are a key target of the federal rural broadband initiative are pretty rocky. He pointed to two builds — one in a particularly rural, particularly rocky area that cost $75,000 per mile to bury fiber. Moffett also cited a Communications Consulting Group study about the feasibility of building a municipal broadband network in Falmouth, Massachusetts, that said that hitting rock during construction could quadruple the cost per foot of building the network.  

How much providers will charge for service also is going to be a function of the build costs and expected penetration rates. Moffett estimated that a provider that wants to charge $50 per month for fiber broadband and anticipates a 40% penetration rate, needs to keep costs around $1,500 per home passed.  

In the end, whether telcos and cable operators continue their respective fiber buildout binges will depend on demand and how much customers are willing to pay. Despite the slowdown in broadband subscriber growth over the past few quarters, rural areas, where choices are few or nonexistent, appear to be hungry for higher-speed service. The economics of getting them that service will just have to work themselves out. ■

Altice USA said it lost about 13,000 residential broadband customers in Q3, better than the 15,000-to-20,000 losses its CEO said were expected more than a month ago, and vowed to reverse those losses through accelerated footprint expansion, new products, fiber upgrades and additional investment in mobile and converged offerings. 

Altice USA CEO Dexter Goei warned that broadband subscribers could go negative in Q3 to the tune of between 15,000 and 20,000 customers at the Goldman Sachs Communacopia conference on Sept. 23. That news drove the stock down by as much as 16% that day and sank the sector as fears that the anticipated broadband growth slowdown could accelerate.

Despite the broadband decline, total revenue for the company was up 5.8% in the period to $2.57 billion and adjusted EBITDA rose 3.4% to $1.16 billion. 

In a press release, Goei said that the near-term focus is to return to broadband growth and boost investment in its residential business.

“Today we are announcing strategic measures to enhance the company’s product portfolio and customer experience, including footprint expansion, fiber and network upgrades, as well as investments in simplified and converged offerings that support consumer needs, and a rapid expansion of sales distribution channels,” Goei said in a press release. “I am optimistic that by advancing these key initiatives we will drive long term sustainable growth and value for all of our stakeholders.”

The initiative seemed to cheer investors, who drove up Altice USA shares by more than 8% in after-market trading Nov. 4 to $17.75 each. 

Back in September, Goei said the expected broadband decline was due to lower than expected gross additions, the result of an “underwhelming” back-to-school period. But the CEO was hopeful that new efforts launched at the beginning of September, like increasing the speeds of its Altice Advantage Internet product to 50 Megabits per second (a 65% boost), renaming it Optimum Advantage and keeping its price point at $14.99 per month, will boost subscriber rolls. In July, Altice said it would rebrand its Altice Mobile product as Optimum Mobile, the first step in aligning all of its brands under the Optimum name. 

Altice has been deep in its fiber-to-the-home network upgrade for the past few years, but had to scale back during the pandemic to adhere to protocols. Now that those restrictions are easing, the company said it plans to step up its fiber rollout to pass 1.5 million homes with fiber-to-the-home capability by the end of the year -- up from 1.26 million passings in Q3 -- and to 2.5 million FTTH passings by the end of 2022. That includes completing the vast majority of its Connecticut territory by the end of 2022 and targeting 100,000 homes for fiber upgrades within Suddenlink’s footprint next year.  

Existing hybrid-fiber-coax (HFC) areas inside the Suddenlink footprint also will see speed increases from the old maximum of 150 Megabits per second to 400 Mbps and 1 Gigabit per second. 

“We’re on track to deliver over 300,000 upgraded homes by the end of this year, at the higher end of what we were targeting, and we’ve already commenced additional upgrades which we will complete next year,” Goei said on the call.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that Altice’s new strategic direction is in part a repudiation of its old method of deep cost cuts, minimal capex spending and healthy price increases, which the company previously dubbed “The Altice Way.” 

The new direction seems to make Altice more of a conventional cable company, which the analysts saw as good news. 

“[T]hey are conceding that they have underspent on capex, and, having done so, full fiber replacement, especially in competitive areas, is the best strategy,” Moffett wrote.

The company said it also will expand investment in its sales distribution channels to pre-pandemic levels. Door-to-door salesforce headcount, which slipped to 241 in Q3 after being as high as 518 in 2018, is expected to rise to between 400 and 500 by the end of next year. Retail locations, which fell to 87 in 2020 during the height of the pandemic, are expected to rise to between 150 and 170 locations by the end of 2022.  

Altice said that most of the broadband losses came in Optimum markets where it competes against Verizon’s Fios products. Broadband customer growth was consistent with 2018 and 2019 levels within its Suddenlink footprint. 

On a conference call Thursday to discuss Q3 results, Goei said that Verizon Fios has benefited from having a “mobile strategy, product and mindshare which is significantly higher than ours across the board,” which should change now that Altice USA’s MVNO partner is T-Mobile instead of Sprint. And the CEO believes the expansion of the fiber buildout will also make a competitive difference. 

“We think that building fiber puts us in a superior network position relative to them,” Goei said of Fios. “...They need to fix their fiber-to-coax termination if they want to go to higher speeds. We’re going to be 10-Gig ready effectively by the second half of next year across our fiber footprint and have a longer runway with product advantage and mindshare. We’re repositioning ourselves to be able to duke it out on an equal, if not better, product portfolio going forward.”

As far as boosting broadband subscribers, Goei said on the call that lower churn has driven less competition for gross customer additions, which has impacted gross additions in general. And though there was some softness in the back-to-school market, he believes that segment is beginning to come back. 

“Yes, we had a peculiar 2021 back-to-school,” Goei said on the call, adding that after visiting some college campuses “it looks like [things are] back to normal.”

While cable operators grapple with the slowdown of broadband subscriber additions expected in the third quarter and beyond, Bernstein media analyst Peter Supino said that telcos, long the butt of jokes about the sluggish speeds and poor service inherent in their core digital subscriber line service, have streamlined operations and are positioning themselves to take back significant market share. 

In a research note, Supino pointed to AT&T’s spinoff of DirecTV, Frontier Communications’ emergence from bankruptcy, Lumen’s (formerly Century Communications’) sale of about 7 million passings to Apollo Global Management and T-Mobile’s successful integration of Sprint, and how those moves have freed up their respective balance sheets to invest in fiber-to-the-home networks and technology to bring faster, more reliable broadband to residential customers. Tack on investment in C-band spectrum by AT&T, Verizon, and T-Mobile to extend fixed wireless broadband to harder to reach areas, and the outlook for telco service looks a lot better than it has in the past. 

“During 2021, each of AT&T, Verizon, Frontier, Lumen, and T-Mobile, in different ways, became a more viable contender for residential broadband subscribers,” Supino wrote, adding that he expects telco fiber-to-the-home (FTTH) broadband passings to rise 50% from 51.1 million in 2021 to 77.1 million homes by 2025.     

AT&T is expected to lead the pack, with 1.8 million FTTH passings by 2025, up from 411,000 this year, according to Supino. Total FTTH penetration from the four telcos is expected rise from -0.7% in 2021 to 3.1% by 2025, the analyst wrote.

Cable companies have dominated the broadband business for more than a decade, accounting for the lion’s share of additions by offering  higher speeds and better quality compared to telcos’ inferior DSL service. But as cable operators have warned that the record-setting growth pace of the past few years will slow down in the third quarter, AT&T and others have committed to building out their fiber networks and lowering prices to capture share. 

Also Read: How Slow Will the Broadband Slowdown Be?  

Last month, Comcast said broadband customer additions would be slower than expected in the third quarter. On Sept. 23, Altice USA CEO Dexter Goei warned that his cable company expected to lose between 15,000 and 20,000 broadband customers in Q3, and could possibly end the year with flat net additions. 

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

That sent cable stocks into a tailspin, with Altice USA losing about 28% of its share value in two weeks. Other stocks like Comcast, Charter and Cable One, were down less dramatically, but the shift caused a few analysts to rethink their outlooks on the stocks. 

Altice USA fell another 3% on Oct. 12 (it closed at $17.63 down 49 cents each) after Deutsche Bank analyst Bryan Kraft lowered his rating on the stock to “Hold” from “Buy,” and reduced his price target to $22 per share from $40 each. 

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

That downgrade came a day after Raymond James analyst Frank Louthan downgraded the cable sector, saying operators could lose as many as 11 million broadband customers in the next four years. In his note, Louthan wrote that telcos could make “a significant change to the communications landscape that is set to shift the balance of power that has favored the cable companies for the past 20 years,” according to Bloomberg. 

Barclays Group media analyst Kannan Venkateshwar believes that telcos have more short-term visibility than cable due to new device launches, tailwinds from the EBB program and successes bundling streaming and wireline broadband offerings.

“We also believe that the industry in some ways is seeing more stable promotional activity than last year because of the structure of promotions,” Venkateshwar wrote. “In addition, T-Mobile’s focus on higher end pricing plans and ARPA growth should also provide some stability to the competitive environment near-term. Telecom companies also appear to be getting better at bundling wireline and wireless as organization structures are better aligned.”

AT&T has set an ambitious agenda to gain 50% market share within three years in the regions where it has launched fiber-to-the-home (FTTH) service.

“We have proof of how we do this historically,” Jeffrey McElfresh, CEO AT&T Communications, said at the Barclays Global Technology, Media and Telecommunications Broker Conference. “As you look at the fiber that we built out in the ground in 2016, at the three-year mark, we roughly approach about a 50% share gain in that territory. And so for 2020, with the bulk of our investments behind us in this fiber plan, our tactics are to drive penetration with the fiber that we’ve built.”

Despite AT&T’s having lost 123,000 wireline broadband customers in the third quarter, McElfresh said “the economic performance of our broadband business is very strong, setting aside subscriber losses in the lower speed DSL segment in the copper network.”

In markets where AT&T faces off against Comcast, Charter Communications and other cable broadband providers, “where we have fiber, we win and win handily,” he added. In a June 4 note to investors, MoffettNathanson analyst Craig Moffett said that AT&T had gained 1.1 million FTTH customers in the previous year, bringing its base at the time to 3.1 million subscribers, an impressive 57% annual growth rate.

“But from whom are these market share gains coming?” Moffett asked. “The short answer appears to be …. from AT&T itself.”

Indeed, rather than poaching customers from cable operators, AT&T has largely been upgrading existing DSL and U-verse users.

In any event, the No. 2 U.S. wireless operator appears to be charging forward with the strategy. It plans to bundle its new premium virtual pay TV service, AT&T TV, to drive FTTH growth.

At the Barclays conference, McElfresh said AT&T TV — which has been soft-launched in New York and a dozen other markets — will roll out nationally in February. That livestreamed service, which comes with a two-year contract, requires no truck rolls or satellite launches and requires half the capital spending of DirecTV satellite TV.

“Our growth agenda is on fiber and our entertainment group, and on the AT&T TV product that will be offered nationwide,” McElfresh said.

Cable MSOs face significant business opportunities and challenges as traditional telcos evaluate strategies to cater to increasing broadband demands needed to support enterprises, municipalities, data centers and more.

MSOs were once seen as an alternative to traditional telecom operators, but according to Leichtman Research Group, cable is dominating broadband access in the United States, owning 64% of the market share. Already saturating the market, MSOs are showing no signs of slowing down, as Dell’Oro Group has reported that MSOs will spend $2 billion by 2023 on broadband access efforts to support 5G, the Internet of Things, 10G and other emerging applications.

Cable’s biggest asset is also its biggest upcoming headache. Coaxial cable, or “coax,” has been the lynchpin for cable’s domination in the U.S. residential market, providing a physical RF superhighway that continues to outperform legacy telecom copper wiring never designed for broadband delivery. Certainly, telecoms have been able to apply Moore’s Law silicon to squeeze better performance out of existing copper, getting anywhere from 250 Megabits per second to 300 Mbps over a few thousand feet with the latest digital subscriber line technology and up to Gigabit speeds over a few hundred feet via G.fast. But coax, in combination with continually evolving DOCSIS, has proven its ability to deliver Gigabit speeds over existing physical wiring.

Fiber Gives Telcos a Boost

Telecom’s answer to higher speeds is fiber, an effective and competitive tool for service providers to provide both broadband and video. Fiber provides traditional phone companies parity with cable in the residential market, but at the cost of physical installation.

“Cable operators can sweat a little more out of the existing coax plant and do it a lot easier and a lot faster than telcos can plow fiber into the ground,” Ryan McCowan, Adtran’s head of solutions management for the Americas, told me. “Large MSOs like Charter and Comcast saturate the market with Gigabit downstream due to the ease of delivering bandwidth using coax and DOCSIS.”

Coax starts to show its vulnerability and age in the areas of shared capacity and upstream bandwidth. Fiber is already being incorporated by MSOs in a hybrid architecture, with fiber being used to deliver more bandwidth out further, then switching over to coax as you get closer to the customer. This works well when there’s relatively static growth, but business customer wins and growing residential needs will drive node splits and that ends up adding capital costs.

“It’s getting more expensive to do node splits, node-plus-0 architectures,” McCowan said. “It’s still cheaper than building out fiber, but that’s if you have a static analysis. If you have very swift traffic growth, you end up doing multiple node splits over 18 months. Some operators look at the one-time cost of going all fiber end-to-end and not having to deal with future node splits and they like the way deploying fiber can help with capacity growth, especially when it comes to delivering business services.”

Business customers also want symmetrical services, while DOCSIS and cable have happily dominated the residential market with big upstream/small downstream bandwidth services. Cloud services ranging from simple data backup to virtualized call centers tied into elaborate CRM systems require reliable and steady upstream bandwidth much larger than the needs of a typical household. Fiber has a clear advantage in symmetrical bandwidth, a fact Verizon Communications and others emphasize in their marketing.

But emerging residential applications may start to strain DOCSIS as well. “Look at cloud-connected security cameras,” McCowan stated. “If you have large numbers of subscribers in a neighborhood that start stream one, two and three cameras at 4 Mbps, it can take asymmetric services to its needs. Symmetric bandwidth becomes a necessity.”

MSOs aren’t standing still, with business customers driving cable operators to install more fiber and better utilize existing fiber plant. “One trend we’re seeing is operators wanting to offer multiple services over existing fiber, using WDM [wave-division multiplexing] to create more broadband pathways,” Clearfield chief marketing officer Kevin Morgan said. “When it comes to fiber deployments, we’re being asked by many cable companies what can we do, what should we do.”

Cable Gets Fiber-Curious

Companies are continuing to maintain and invest in their coax infrastructure, Morgan said, but want to learn more about fiber as they need to deliver higher broadbands speeds to destinations closer to the customer. Implementing fiber in outside plant is of growing interest as cable companies push fiber deeper into their networks and closer to the customer.

One emerging opportunity for cable companies is 5G cellular deployments, with fiber complementing coax. Fiber provides high speeds and low latency to small-cell deployments, with coax able to deliver power to edge equipment. “When you start talking about two-millisecond latency requirements for 5G cells at the edge of the network, traditional fiber won’t support it, much less coax,” Morgan said. “You need dark fiber. Coax and hybrid networks will be fine for backhaul.”

MSOs may not need or want to support the extreme requirements of 5G deployments, but growth opportunities in the business sector and emerging symmetrical bandwidth needs for residential customers lead to the inescapable conclusion of more fiber investment. Cable companies have the solid foundation of coax and DOCSIS to build upon, but all structures need renovation at some point in time.

Doug Mohney is a principal at Cidera Analytics and has been working in and writing about IT and satellite technology for more than 20 years, including broadband, data centers, IoT and voice tech.