To say that the so-called “triple play” package was a good promotional tool for cable TV providers nationwide would be a gross understatement. Being able to bundle cable TV, broadband, and phone service into one package is what made names like Communication of the Charter (NASDAQ: CHTR) and Comcast (NASDAQ: CMCSA) the power plants they have become since the late 90s.
Everything is imploding now, of course. Only about half of all American households still pay for landline service, while streaming services are viable alternatives to traditional cable. The number of wired homes in the United States has fallen from over 100 million in 2014 to less than 74 million today, according to eMarketer, on the way to 63 million pay-per-view homes by 2024. Consumers have more choices for broadband internet. more than ever before, with wireless broadband service now an option for millions of people.
In fact, the triple play offer is becoming less and less relevant.
However, there is a surprisingly marketable new bundle that cable titans are finding success with. It turns out that consumers are looking for mobile phone services from their cable TV provider. This combination could well offset the negative impact of the cord cut on the cable TV business.
Surprising market penetration
Market research agency Parks Associates provides insight into bundle penetration: At the end of the first quarter of this year, 19% of US broadband subscribers are also benefiting from the wireless / mobile service offered by the same supplier.
It’s not a lot, it’s true. But put it in perspective. Charter’s Spectrum did not start offering mobile phone service until mid-2018. It now serves nearly 2.7 million mobile customers. Comcast’s Xfinity Mobile platform wasn’t launched until mid-2017 and already has 3.1 million wireless subscribers. According to data from Parks Associates, the share of domestic broadband customers who bundled their broadband internet service with a mobile plan has grown from just around 11% at the start of 2019, to the aforementioned current figure of 19%.
Perhaps most noticeable is that this penetration is taking shape despite the fact that these mobile services are limited to existing broadband customers of cable companies.
Don’t worry about the relatively small scale we’re seeing right now. The growth trend is the key. It is simply amazing.
Make broadband more marketable
If you think this is all doomed for more traditional wireless names like AT&T (NYSE: T) and Verizon (NYSE: VZ), think again.
While Comcast and Charter rely in part on their broadband infrastructure to power their mobile networks, Charter pays for wholesale access to Verizon’s network when it cannot manage the mobile service in-house. Comcast is also heavily connected to Verizon’s network, although AT&T also offers similar access to third-party wireless service providers. This move is still a revenue opportunity for the two titans of the wireless world, relieving the headaches – and costs – of managing every retail customer using these networks.
The cable TV names that handle the basic work for mobile network operators, however, are hardly on the losing side of a bad deal. At the very least, adding mobile service to the mix is a tool for attracting and retaining customers, and it can eventually become a key profit center.
Parks Associates says the average cost for a broadband / mobile combo is $ 128 per month. With stand-alone broadband service costing an average of $ 64 per month, the remaining $ 64 of the total cost of the combination is equivalent to the monthly cost of a typical wireless service plan. Although the arena for mobile services is very competitive, at least we know that all of the big names in the mobile telecommunications industry are profitable. Since the cable television industry has been on the defensive for years, conversely, it is not always clear if there is still any real profit to be gleaned from being in the business.
At the end of the line
For the shareholders of Charter and Comcast, this is a much needed beacon of hope. While both continued to add broadband customers in the last quarter, both also added to their ongoing cable TV customer losses. Mobile is quickly becoming an effective way to compensate for this attrition.
However, while the growth of the mobile / broadband plan may be steady, it has also been slow so far. It is also limited by the infrastructure capabilities of Charter and Comcast, and it should be understood that sooner or later Verizon will respond to the threat posed by its wholesale customers. It’s a long-term project, that’s for sure.
It is certainly a change that all investors would still be wise to put on their radar.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.