Dominance in broadband services has buoyed Comcast stock and other cable TV firms for years, but now a host of issues — including President Biden’s latest plan to fund municipal-backed broadband services — are making investors fret.
Amid the coronavirus and shift to online learning and remote work, cable TV companies led by Comcast (CMCSA) enjoyed stellar growth in broadband subscriber growth in 2020. That subscriber growth was expected to slow down this year as workers returned to offices and kids went back to school.
However, long-range worries over whether cable TV firms will stay dominant in broadband could be a bigger problem. One concern surrounds fixed 5G broadband services to homes now ramping up due to efforts from Verizon Communications (VZ) and T-Mobile US (TMUS).
A second worry is the expansion of fiber-to-the-home broadband services by AT&T (T) and other phone companies. There’s also the global Starlink satellite broadband service in the works from Tesla (TSLA) founder Elon Musk’s SpaceX.
And now government stimulus funding for competing broadband services appears to be on the way as Comcast stock retreats from an all-time high.
Cable TV Firms Dominate Broadband
The American Rescue Plan Act passed in March provides about $50 billion for expanding broadband access. President Biden’s latest proposal for $2 trillion in infrastructure spending includes $100 billion in potential broadband funding, some of which would go to municipal-backed projects.
UBS analyst John Hodulik says investors in cable TV such as Comcast stock should brace themselves for change.
“The 10-plus-year run cable stocks have enjoyed has been underpinned by the emergence of these companies as leading providers of residential broadband in the U.S. amid faltering competitive initiatives from players as large as Google,” he said in a recent report to clients. “We are now entering a new competitive and regulatory cycle. While we currently think that history will repeat itself and risks will dissipate as they have in the past, it is far from certain and the group could be more volatile pending clarity.”
In 2020, U.S. cable TV firms added 4.82 million broadband subscribers while phone companies added 8,535, said Leichtman Research. Cable TV firms ended 2020 with 72.8 million broadband customers versus 32.9 million at phone companies.
The Biden administration’s American Jobs Plan includes $100 billion in proposed broadband funding. It aims to “reduce internet prices for all Americans.”
Comcast Stock: Broadband Price War Coming?
Wells Fargo initiated coverage of the cable TV sector on March 16. Analyst Steven Cahall said: “Cable has favorable financial characteristics stemming from broadband, with revenues visible, capital intensity declining and cash returns growing.”
He added: “A key risk for the cable sector is deflationary broadband pricing similar to what has been seen in wireless.”
The roll out of 5G wireless broadband services to homes looms for Comcast stock and others. T-Mobile has told analysts it expects to add 7 million to 8 million fixed wireless internet customers. They will come within the next five years across rural and urban areas.
T-Mobile in early April priced its service at $60 monthly including taxes and fees. The company says average internet speeds will be above 100 megabits per second. While T-Mobile’s pricing is in-line with cable promotional offers, it’s below consumer costs after those offers expire, analysts say. T-Mobile stock trades below an entry point.
Meanwhile, Verizon has projected 5G broadband service revenue of $1 billion by 2023 but hasn’t disclosed subscriber targets. Many 5G stocks are part of Apple or smartphone ecosystems.
At a recent investor day, AT&T said it plans to build out fiber to 3 million homes in 2021. Starting in 2022, AT&T signaled that it could ramp up fiber buildouts to 4 million homes annually. At that pace, AT&T’s fiber services could reach 50% of its service footprint in a few years.
Starlink A Threat In Rural U.S.?
There’s also a worry for Comcast stock coming from above.
Musk’s global Starlink satellite broadband service plans to use thousands of low-earth-orbit satellites. Parent SpaceX won nearly $900 million in federal funding last year. It now can provide 100 megabits per second of internet service to rural homes.
It remains to be seen whether Starlink can muster the network capacity to provide services to millions of homes.
Craig Moffett, analyst at MoffettNathanson, expects the Starlink services to compete more favorably in Europe than in the U.S. He says in most U.S. markets, cable TV firms will retain a speed and price advantage.
“It’s more likely that the Starlink constellation was never meant to compete with cable operators,” Moffett said in a recent report. “The limited usable capacity won’t allow it.”
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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