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Cable Technology Feature Article

March 18, 2013

Cable Operators Face AT&T's 1990's Problem

By Gary Kim, Contributing Editor

U.S. cable operators no doubt are working harder than ever to stanch the erosion of video customers to U.S. telcos and satellite providers, and with success that now is measured, as AT&T (News - Alert) once counted its long distance customers as a negative number.

In fact, all of the cable operators in the top 13 lost customers in 2012 – the only issue was whether they were losing at lower rates than in prior years.

Leichtman Research Group says the 13 of the largest entertainment video providers in the United States, representing about 94 percent of the market, acquired over 170,000 net additional video subscribers in 2012.

So the overall market grew slightly, indicating that market share shifts really is the game being played in the video entertainment business at the moment. Cable providers now have a 54 percent share, compared to a 58 percent share in 2010.

Additionally, the customer growth was positive, but slight, at about 0.2 percent.

Undoubtedly, the fierce competition is hitting profit margins. In fact, according to Strategy Analytics, profit margins on cable broadband services are 70 percent to 110 percent higher than those on video services (depending on whether or not advertising revenue is included in the calculation).

These days, overall video service profit margins for U.S. cable companies are likely in the 20-percent range, whereas once they routinely were in the 40-percent range. Profit margins for broadband access likely are closer to 60 percent.

It therefore is no surprise that a cable operator now can say that the anchor service is broadband, not video. In the same way, fixed network service providers someday will say broadband is the anchor service, not voice.

Mobile service providers will make the same claim. To be sure, those are statements of direction, perhaps not present day realities, in many cases. But mobile data already represents more than half of mobile service provider revenue globally, by at least one estimate.

That isn’t to say protecting legacy revenue streams, as long as possible, is unimportant. In fact, it matters greatly how long any service provider can “buy time” by prolonging the magnitude of its legacy revenue while new sources are developed.

Edited by Allison Boccamazzo

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