Really great article. The one thought that occurs to me is where all this leaves the growth propsects for the core cable businesses of Comcast and Charter. Because they're about 50% penetrated on their footprints currently, as I understand it. So if the end state is 50/50 market share then there's zero growth there. Does that mean all growth comes from pricing/margin improvement? Surely that upside gets capped if in the new world you have a competitor with an equal/superior product, no?
I have a similar observation to @JF below. The arguments for total cable destruction are great. But the reality was that at a $600+ stock price on CHTR, for example, the market was assuming strong penetration gains to something like 65-70% of the footprint with a continued 4-5% price increase over time. However, with the unit economics of fibre becoming better (or at least the telco's thinking they are better) the fibre overbuild will stop CHTR from reaching those penetration levels and also likely put a brake on the 4-5% pricing growth. The market was also assuming that the capital intensity of CHTR would decline post the DOCIS 3.0 upgrades. However, CHTR continues to set out a long-term capex plan only to renew it in a few years with yet more capex plans to continue keeping pace with fibre. Post the more recent announcements there will be another in 3-5 years for another upgrade. We can't assume capital intensity will decline. The combined effect is that FTTH does have a large impact on CHTR's stock valuation because the transition from monopoly to duopoly is an intrinsic value decline. Finally, the long-run 30 year end state has to be fibre (with the cable companies basically all fibre by then anyway). Fibre is substantially cheaper to maintain and so once installed, there will be a cost advantage (and performance advantage) over the long-term. Side note, no one seems to discuss how the transition to the public cloud is making upload speeds so important. Cable can talk about symmetry but the reality is that their real world performance / capacity for 1Gbps symmetry isn't as good as they claim it to be. At the right price I am still bullish on CHTR but don't think we can dismiss FTTH's impact.
Agree with everyone's comments. Reading this has given me a better understanding cable vs. FTTH than anything else I've read. I just had a quick question on one point:
"Because the housing market is so hot right now, moving is way down, and that means there are less customers to “gain” as they move."
I understand you mention cable backs this claim up by claiming their churn is also at record lows even as net broadband subscriber adds are deteriorating. But...doesn't a hot housing market by definition mean lots of houses are changing hands, and by extension a lot of people are moving?
I just have a red flag going off when management is saying the hot housing market means less people are moving, and that's why their subs are deteriorating. So any further clarity here around this point would be appreciated!
Really great article. The one thought that occurs to me is where all this leaves the growth propsects for the core cable businesses of Comcast and Charter. Because they're about 50% penetrated on their footprints currently, as I understand it. So if the end state is 50/50 market share then there's zero growth there. Does that mean all growth comes from pricing/margin improvement? Surely that upside gets capped if in the new world you have a competitor with an equal/superior product, no?
Fantastic article.
I have a similar observation to @JF below. The arguments for total cable destruction are great. But the reality was that at a $600+ stock price on CHTR, for example, the market was assuming strong penetration gains to something like 65-70% of the footprint with a continued 4-5% price increase over time. However, with the unit economics of fibre becoming better (or at least the telco's thinking they are better) the fibre overbuild will stop CHTR from reaching those penetration levels and also likely put a brake on the 4-5% pricing growth. The market was also assuming that the capital intensity of CHTR would decline post the DOCIS 3.0 upgrades. However, CHTR continues to set out a long-term capex plan only to renew it in a few years with yet more capex plans to continue keeping pace with fibre. Post the more recent announcements there will be another in 3-5 years for another upgrade. We can't assume capital intensity will decline. The combined effect is that FTTH does have a large impact on CHTR's stock valuation because the transition from monopoly to duopoly is an intrinsic value decline. Finally, the long-run 30 year end state has to be fibre (with the cable companies basically all fibre by then anyway). Fibre is substantially cheaper to maintain and so once installed, there will be a cost advantage (and performance advantage) over the long-term. Side note, no one seems to discuss how the transition to the public cloud is making upload speeds so important. Cable can talk about symmetry but the reality is that their real world performance / capacity for 1Gbps symmetry isn't as good as they claim it to be. At the right price I am still bullish on CHTR but don't think we can dismiss FTTH's impact.
Great article Andrew!
Agree with everyone's comments. Reading this has given me a better understanding cable vs. FTTH than anything else I've read. I just had a quick question on one point:
"Because the housing market is so hot right now, moving is way down, and that means there are less customers to “gain” as they move."
I understand you mention cable backs this claim up by claiming their churn is also at record lows even as net broadband subscriber adds are deteriorating. But...doesn't a hot housing market by definition mean lots of houses are changing hands, and by extension a lot of people are moving?
I just have a red flag going off when management is saying the hot housing market means less people are moving, and that's why their subs are deteriorating. So any further clarity here around this point would be appreciated!
Great stuff, thanks Andrew! 💚 🥃
Great article discussing the competitve concerns for the cable companies. Thanks for the effort!
Andrew, just wanted to say this was a really excellent article. The best I've seen on in the internet in understanding fiber vs. cable dynamics
Agreed -- super stuff, Andrew. Basically reaffirms FYBR thesis (pending Part 3 notwithstanding?). Thanks!
Really nice work. Thank you.