US cable and telecom network operators feel the pain
According to the financial analysts at TD Cowen, prominent cable companies like Charter and Comcast collectively lost 186,000 customers in the first quarter 2024, ahead of their estimates of 141,000.
“The quarter is proving that Cable and Wireless are in the throes of market maturity, both facing a smaller pool with churn at historically low levels,” wrote TD Cowen in a recent note to investors.
“Cable has lost subscribers for a fourth consecutive quarter and [it’s] getting worse,” the analysts wrote. “The Broadband market is clearly maturing and churn is at historic lows, meaning there are less [customer] adds to go around. Therefore, even with FWA [fixed wireless access] adds trending lower, Cable will continue to struggle to grow subscribers in the near-to-mid-term.”
“During the first quarter, our Internet customer growth remained challenged by a low move and generally low activity environment, coupled with continued elevated competition at least in the short term and a small impact from fewer low income connects due to discontinued ACP availability,” explained Charter CEO Chris Winfrey during his company’s quarterly conference call, according to Seeking Alpha.
Wireless carriers AT&T, Verizon and T-Mobile collectively reported more postpaid phone growth than expected, but the TD Cowen analysts noted their gross customer additions were “light across the board.”
MoffettNathanson analysts wrote that T-Mobile’s numbers during the first quarter “were met only after adopting a dramatically sweetened free-iPhone offer in the waning days of the quarter. That offer was pulled as soon as the quarter ended. Industry growth is slowing, Cable is taking share (and threatens re-pricing the industry lower in the process), and the ever-lengthening upgrade cycles for handsets have to reverse eventually. None of that is terrifying. But it is worrying.”
Telco job cuts are continuing after many years of layoffs.
AT&T and Verizon have been shedding jobs/ reducing headcount for many years and wireline carrier Lumen Technologies is following:
- AT&T cut the most total number of jobs in 2023, reducing its headcount from 162,920 employees at the end of 2022, to 150,470 employees at the end of last year. That was below the nearly 40,000 jobs AT&T managed to cut in 2022.
- Verizon cut slightly fewer jobs than AT&T last year, though it was a higher overall percentage of its employee base. The #2 U.S. carrier slashed 11,700 positions in 2023, ending the year with 105,400 total employees.
- Lumen Technologies recently announced it would cut almost 1,000 positions, or 7% of its workforce, to “right-size our business through automation and AI.”
The very tough telecom market may be pushing operators to raise money or pursue M&A. “The capital markets are becoming more favorable, further opening up the possibility for M&A,” wrote the financial analysts at TD Cowens.
- Cogent is raising around $200 million with some of its IPv4 Internet addresses.
- According to Bloomberg, Uniti Group is preparing to reunite with Windstream in a $15 billion merger.
Uniti and Windstream aren’t alone. For example, Bloomberg reported that European satellite operators SES and Intelsat have also restarted merger negotiations.
Meanwhile, T-Mobile now expects to close its $1.3 billion purchase of MVNO Mint Mobile in the coming days. The company also recently inked a $1.5 billion plan to invest into fiber operator Lumos.
It’s unclear when the next big M&A transaction might arrive in the telecom industry. There are plenty of assets up for sale, including UScellular’s mobile business and Crown Castle’s fiber and small cell operations.
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Hovering over all of this is the apparent end of the U.S. government’s Affordable Connectivity Program (ACP). That program currently provides up to $30 per month to 23 million U.S. households for their telecom services, money that ultimately runs into the coffers of network operators.
“We’re expecting that the program funding is going to end,” said T-Mobile’s Michael Katz during his company’s quarterly conference call.
Katz said T-Mobile counts “a couple hundred thousand” prepaid customers on the program. But he suggested that the end of ACP might help funnel some customers to T-Mobile’s cheaper offerings, including its new Mint Mobile brand.
Meanwhile, other US subsidies are scheduled to hit the US broadband market in the coming months and years. For example, money from the Biden administration’s $42.5 billion Broadband Equity Access and Deployment (BEAD) program is expected to begin running through U.S. states starting next year. That money will arrive in the form of grants for the construction of networks in rural areas.
It’s unclear how that shifting subsidy landscape will affect a U.S. broadband market that’s showing signs of slowing.
“We now have confidence that industry [customer] adds will land at a little more than 400,000, down from a normal pace of 700-800,000,” wrote the financial analysts at New Street Research in a note to investors following the release of Charter’s earnings. “If we annualize this, based on normal seasonality, we land at a little more than 1 million adds for the year, down from a normal pace of ~2.5 million.”
The New Street Research analysts explained that growth in the U.S. broadband market is generally keeping pace with the formation of new households, which is also slower than normal.
“The big question: have we hit saturation for the broadband market or are there temporary pressures impacting growth,” wrote the analysts. “If it is the former, then this is the new normal. If the latter, growth should reaccelerate at some point.”
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References:
https://www.lightreading.com/finance/things-are-getting-tight-for-us-telecom-network-operators
https://techblog.comsoc.org/category/affordable-connectivity-program-acp/
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