According to a report published by Moody's Investors Service,
the cable industry continues to expand into the business services
vertical and is expected to see particularly strength in the Small
and Medium Business (SMB) segment. They expect that the cable
industry's revenues from business services to SMBs will touch $9
billion by 2014, up from $5.2 billion in 2011. This is expected to
come as a result of market expansion, as telecom companies see
their SMB revenues stagnate at current levels.
At the end of fiscal 2011, it was found that the SMB segment
contributed a mere $5 billion or 6% of the $88 billion in sales
generated by the cable industry. However, there could be a change
in the revenue share given that business services are expected to
grow so strongly (73% from 2011 to 2014, according to Moody's
estimates)
Cable companies have been less successful in the residential
segment, where they have been losing video subscribers over the
past few years to big telecom players like
AT&T
(
T
) and
Verizon Communication Inc.
(
VZ
).
These large telecom players continue to roll out their fiber
optic cable network to provide broadband data and video services to
their customers. During 2011, Verizon added 701,000 video
subscribers while AT&T added 800,000 video subscribers.
Cable companies on the other hand, while gaining at the SMB
segment have been losing residential customers to telecom carriers.
For instance,
Time Warner Cable
(
TWC
) and
Comcast Corporation
(
CMCSA
), lost 129,000 and 460,000 video subscribers, respectively, in
2011.
So in order to counter the threat from these telecom companies,
Time Warner Cable and Comcast are continuously deploying DOCSIS 3.0
wideband technology to provide faster network service of up to 50
mbps to its customers. Moreover, these large cable companies are
also diversifying their product portfolio by offering improved
services to their SMB customers including Voice over Internet
Protocol (VoIP) services and faster wideband services. Last year,
Time Warner Cable and Comcast generated business service revenues
of $1.47 billion and $1.79 billion, respectively, representing
year-over year growth of 32.7% and 41.4%, respectively. Both these
companies together accounting for nearly 65.2% of the total SMB
revenue contributed by the whole cable industry in 2011.
Moody's Investors Service also believes that as these cable
companies continue to grow in confidence in the SMB segment, they
will gradually shift their focus to large business units, thereby
acquiring more assets to compete with large telecom players.
Moreover, they also believe that increased competition in the SMB
segment may result in slowdown of business service revenue growth
for telecom carriers in the near future. The revenue for the
telecom players in the SMB segment is anticipated to reach $65
billion by 2014.
Currently, Time Warner Cable, Comcast Corporation, AT&T and
Verizon have a Zacks#3 Rank, implying a short-term Hold rating on
the stock.
COMCAST CORP A (CMCSA): Free Stock Analysis
Report
AT&T INC (T): Free Stock Analysis Report
TIME WARNER CAB (TWC): Free Stock Analysis
Report
VERIZON COMM (VZ): Free Stock Analysis Report
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