They're going to write that there are now more Internet subscribers than there are cable subscribers.
That is not the story. The story is people want speed and cable has it. Cable is killing the phone companies because cable wires are thicker and deliver more bits for less capital investment. I first wrote about cable's plans to take over the broadband world for the National Cable Television Association back in 1997, and the plan has succeeded beautifully.
Comcast (CMCSA) is now America's dominant broadband supplier, and Time Warner Cable (TWC) is second. Should their merger be approved Comcast will have nearly 39% of the entire U.S. broadband market. That's more subscribers than all the old regional Bells -- AT&T (T) , Verizon (VZ) and CenturyLink (CTL) -- combined.
Taken together the cable operators now have 59% of the market, according to Leichtman, and the disparity is growing. During the last quarter cable added 381,657 subscribers. Phone companies added just 2,083.
If you are looking for change in this status quo, the place to look is with fiber build-outs that deliver gigabit-per-second speeds. But don't hold your breath. A decade ago the major phone companies were saying they would spend over $53 billion to deliver fiber to 36.1 million homes. They haven't done it. Instead they have been lobbying, often successfully, to keep municipalities from making such investments.
After four years Google (GOOGL) has yet to go beyond Kansas City with its Google Fiber, although it bought a municipal fiber system in Provo, Utah, and has said it will launch in Austin, Texas, later this year.
Mostly companies are delivering what reporters call "fiber to the press release." Google put nine markets in competition with one another for fiber early this year, including Atlanta, where I live, demanding detailed concessions from local governments. Since then no firm decisions have been made.
Meanwhile, other large Internet service providers have been claiming to deliver gigabit speeds real soon now. But, curiously, they're mainly building where such speeds already exist, or are coming. If this were a good business, wouldn't they build where there's no competition?
AT&T has claimed new speeds in Austin, where Google is building. Comcast and Time Warner have announced faster speeds in Kansas City, where Google has built. CenturyLink has talked about expanding in Portland, where Google Fiber talks about building, but its prices are almost twice what Google would offer. Comcast has begun offering one-tenth the speed of Google Fiber to some Portland customers, but at nearly double the price.
AT&T said this spring it would offer -gigabit "Gigapower" service in up to 21 metro areas including Kansas City, where Google Fiber already exists, and Atlanta, which is on Google's "candidate" list. But, in fact, it has reduced its capital budget, as has been reported, and continued to use the promise of broadband to get what it wants, most recently approval of its deal to buy DirecTv (DTV) .
The bottom line is this: Cable infrastructure delivers more speed than phone infrastructure. People prefer it. Change will only come from massive capital investment, and no one wants to make it. The last mile of the Internet belongs to cable.
At the time of publication, the author was long GOOGL and CMCSA, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates COMCAST CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate COMCAST CORP (CMCSA) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, revenue growth, notable return on equity and attractive valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- COMCAST CORP has improved earnings per share by 16.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COMCAST CORP increased its bottom line by earning $2.56 versus $2.29 in the prior year. This year, the market expects an improvement in earnings ($5.93 versus $2.56).
- Despite its growing revenue, the company underperformed as compared with the industry average of 11.8%. Since the same quarter one year prior, revenues slightly increased by 3.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Media industry and the overall market, COMCAST CORP's return on equity exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: CMCSA Ratings Report