Fiber could force cable to choose between ARPU and market share

Cable companies could soon find themselves stuck between a rock and a hard place as battles with fiber-to-the-home (FTTH) providers for subscribers intensify, analysts at Cowen Equity Research warned.

Recapping takeaways from private fiber providers at its recent FTTH Symposium, Cowen noted cable’s standard response to competition from these players has been to lock in subscribers with promotional rates. But participants in Cowen’s conference pointed out these rates are only available for new customers and “existing cable subscribers face substantially higher rates for broadband.”

Cowen’s analysts asserted that “given the national customer bases that large Cable companies have, broad price cuts are highly unlikely, thus leaving Cable in a bind, having to decide whether to cede share or cut ARPUs.”

The firm added two companies – Allo and Ziply Fiber – reported penetration rates are pacing significantly faster than expected, hitting 20-30% in the first year. “As the industry matures, the private FTTH operators see terminal market shares approaching the natural 50/50 split with Cable, with the better operator and customer experience perhaps winning out by a few %points,” Cowen’s team wrote.

While cable operators have repeatedly downplayed the threat from fiber competitors, the broadband landscape is set to change substantially over the coming years. New Street Research recently predicted that with help from government subsidies, fiber will pass around 80% of cable homes by 2030. Cable also faces pressure from fixed wireless broadband, which NSR forecast would rake in 2.4 million net additions in 2022 compared to cable’s 1.5 million and fiber’s 1.9 million.

That said, NSR, which recently held its own fiber-focused conference, estimated cable ARPU will continue to rise through 2025, albeit at a slower pace. Specifically, it predicted ARPU would increase from $65.51 in 2021 to $76.41 over the forecast period, though year-on-year growth is expected to fall from 6% in 2021 to 3.6% in 2025.

NSR’s analysis concluded broadband pricing will remain robust in markets that have one or two gigabit-capable providers, but warned a “threat to pricing occurs when a third gigabyte capable provider enters the market.” By 2030, NSR forecast 83% of markets will have either one or two gigabit providers, while 15% will have three or more.

It added higher build costs stemming from inflation and supply chain constraints could also help ensure ARPU remains resilient across the broadband industry.