Percentage folks who will switch from cable broadband

[LearningMachine]

I understand this group doesn't represent the general public, and has folks who are more sophisticated to understand the difference in reliability, upstream & downstream bandwidth, and latency between the different broadband options.  That said, this group can also represent influencers who family and friends will look to for advice.

 

So, it will be good to get opinion of this group to see if there is at least a small percentage who are willing to move away from their cable broadband when they have more options available for broadband.

Edited November 24, 2021 by LearningMachine

[Gregmal]

I own a bunch of places within a community that was built in the 1980s. The area is/was very boom/bust. As a result there were literally only two internet options for decades. A shitty little local provider and Century Link. Both terrible. But people managed. A third company has started going in and soliciting down payments of $1200 which is refunded via first year's service credit once buildout is complete for the whole fiber network. About 1/3 of the community pre-registered(~150 population total). Interestingly enough, Optimum came in shortly after and bought out the local company that presented an alternative to CTL. 

 

Myself Ive lived on the shitty Sprint network for 15-20 years. Its not great but is so much cheaper than T and VZ that I have no problem dealing with occasional headaches from service issues. I need talk, text, and internet. So Ive never bothered to move and probably wouldnt either unless something severely drastic happened although Ive noticed over time Sprint has gotten better so theres that too. People talk about faster or cleaner service but I cant envision that to a degree that enhances my life enough to pay more for it. Maybe if I watched more TV but I dont. 

[bizaro86]

I have cable broadband, but would switch to the telephone company broadband in a heartbeat if it was cheaper. They both laid fibre in my neighbourhood, but so far every 2 years when our deal is up my wife calls and says we'll switch if they don't give us another deal and they do every time. We've lived here for 12 years and never switched or paid full price.

 

 

[Ross812]

We live in an area with options - ATT Fiber, Google Fiber, and cable broadband. I have had all three and for the most part they are interchangeable. The extra upload speed offered by fiber is nice, but in our case, upload is still limited by the constraints of our employers' VPN. I have a connection from all three companies to my house at this time and I switch to whoever will offer the best price. I did sign up for one year of google gigabyte fiber, but I didn't notice any difference from ATT 300/300 service. Right now we are in a three year no contract agreement with the cable company for 400/40 service for $30/month and it has been stellar throughout the last 18 months of working from home. 

[changegonnacome]

I've mentioned this over on the Altice thread - but people buy the brownie, not the recipe.....HFC v Fibre is way over normal peoples heads.....in the case of home internet they buy speed, brand familiarity & whatever enticing offer the provider might have on that month gift card / free HBO etc. etc. ......most anybody I've ever interacted with couldn't care less about connection symmetry, latency, jitter........they go for the Mid-tier speed bucket on offer, say ~300 - 400mpbs from cable/fibre guys........and if it works, it works . Its why I believe the pure play fibre overbuilders with no brand are going to struggle or certainly have scary low IRR's once they've signed up the nerds, who do care, on whatever footprint they've chosen. 

[Spekulatius]

4 hours ago, changegonnacome said:

I've mentioned this over on the Altice thread - but people buy the brownie, not the recipe.....HFC v Fibre is way over normal peoples heads.....in the case of home internet they buy speed, brand familiarity & whatever enticing offer the provider might have on that month gift card / free HBO etc. etc. ......most anybody I've ever interacted with couldn't care less about connection symmetry, latency, jitter........they go for the Mid-tier speed bucket on offer, say ~300 - 400mpbs from cable/fibre guys........and if it works, it works . Its why I believe the pure play fibre overbuilders with no brand are going to struggle or certainly have scary low IRR's once they've signed up the nerds, who do care, on whatever footprint they've chosen. 

I think people switch from ADSL to FTTH in drives though. The fiber over builders I follow seem to concentrated on areas with little competition with mostly ADSL and at most one cable provider. If you do the math,  a broadband connection is valued by the market at $6-7k per subscriber, to if you build at $1.5k per connection and manage to sign up 30% you are at $4.5k all in cost per customer which is less than $6-7k.

If you target the right areas with reasonable density and only ADSL (which might be their own customers) they can sign up 30% in less than 3 years from what I have seen. Just look at $SHEN earnings report (they have excellent disclosure). I think even with one incumbent cable co, it might be doable to get decent economics. With 2, I think it’s a tough slog.

Edited November 24, 2021 by Spekulatius

[rkbabang]

It would depend on price, availability, bandwidth, and latency.  I have no love for the cable company, if there was a better option I'd switch.

 

[changegonnacome]

1 hour ago, Spekulatius said:

I think people switch from ADSL to FTTH in drives though. The fiber over builders I follow seem to concentrated on areas with little competition with mostly ADSL and at most one cable provider. If you do the math,  a broadband connection is valued by the market at $6-7k per subscriber, to if you build at $1.5k per connection and manage to sign up 30% you are at $4.5k all in cost per customer which is less than $6-7k.

If you target the right areas with reasonable density and only ADSL (which might be their own customers) they can sign up 30% in less than 3 years from what I have seen. Just look at $SHEN earnings report (they have excellent disclosure). I think even with one incumbent cable co, it might be doable to get decent economics. With 2, I think it’s a tough slog.

 

Agree - to my point on speed - ADSL has serious issues getting to the speeds I mentioned 400mb - 500mb...customers want 'me too' speeds.......the reality is those same ADSL areas if presented with cable would upgrade in droves too....the natural experiment would be to find a ADSL market where a cable company edged out into that footprint at the same time a pure play fibre provider moved into the same area (not ATT fibre or FIOS). My guess, without anything to back it up & with both providers offering say 500mb for $50's a month......would be the cable companies brand recongintion/marketing in that area would beat the technical advantage of fibre provider offering in terms of penetration of that footprint. People buy speed & buy brand not underlying network infrastructure architecture.

[LearningMachine]

3 hours ago, changegonnacome said:

My guess, without anything to back it up & with both providers offering say 500mb for $50's a month......would be the cable companies brand recongintion/marketing in that area would beat the technical advantage of fibre provider offering in terms of penetration of that footprint. People buy speed & buy brand not underlying network infrastructure architecture.

 

I agree with you that people buy speed, reliability and brand. As @Gregmal would say, there are somethings that are etched into the psyche of society that you can count on. 

 

When talking with folks in general, including non-technical folks, I've found that "fiber" has become a brand in itself that has been etched into their psyche to be superior in terms of reliability, speed, etc. and there is a big enough percentage of non-technical folks who would pick fiber over cable for the same price in a heartbeat.

 

Also, regarding brand recognition, cable brands are known for lower customer satisfaction compared to nationwide-telco brands VZ and T. That type of lower customer-satisfaction brand recognition actually is negative when compared to someone with a more positive brand.  Comcast's NPS is actually negative, that is, on average, their customers will go out of their way to tell family and friends to not get Comcast.  If Comcast was in an industry where it was not the only game in town, it would be gone in no time.  The only thing that has been saving it with negative NPS is that it has been the only game in town for a lot of people, until now. 

Edited November 24, 2021 by LearningMachine

[LearningMachine]

5 hours ago, Spekulatius said:

I think people switch from ADSL to FTTH in drives though. The fiber over builders I follow seem to concentrated on areas with little competition with mostly ADSL and at most one cable provider. If you do the math,  a broadband connection is valued by the market at $6-7k per subscriber, to if you build at $1.5k per connection and manage to sign up 30% you are at $4.5k all in cost per customer which is less than $6-7k.

If you target the right areas with reasonable density and only ADSL (which might be their own customers) they can sign up 30% in less than 3 years from what I have seen. Just look at $SHEN earnings report (they have excellent disclosure). I think even with one incumbent cable co, it might be doable to get decent economics. With 2, I think it’s a tough slog.

 

@Spekulatius, very well put.  Also, thanks for sharing $SHEN.  

 

 

Interesting to see their cost per passing comparison.

 

@Spekulatius, I haven't looked at the transcripts yet, but do you know how come their cost per passing is lower for fiber than cable? Also, do you know if fixed wireless cost per passing includes cost of spectrum?  I'm assuming it does.  That low $250-$350/passing number explains well why VZ is going after fixed wireless business.   Given that VZ is doing the same things as SHEN for future growth, can get longer-term bonds at lower interest rates, has better brand recognition, better opportunity to pair with mobile and streaming bundle, why not go with VZ over SHEN?  Because you don't want exposure to their mobile side of the business, and you want pure-play broadband?  However, longer term, wouldn't it be better to have broadband in the same company as mobile?  The same fixed wireless spectrum can be shared between wireless subscription and fixed wireless subscription as they generally get used at different times of day. 

 

Edited November 24, 2021 by LearningMachine

[changegonnacome]

1 hour ago, LearningMachine said:

lso, regarding brand recognition, cable brands are known for lower customer satisfaction compared to nationwide-telco brands VZ and T. That type of lower customer-satisfaction brand recognition actually is negative when compared to someone with a more positive brand.  Comcast's NPS is actually negative, that is, on average, their customers will go out of their way to tell family and friends to not get Comcast.  If Comcast was in an industry where it was not the only game in town, it would be gone in no time.  The only thing that has been saving it with negative NPS is that it has been the only game in town for a lot of people, until now. 

 

Right V & T are an exception in terms of branding - I'm talking about the pure play fibre guys nobody has heard off in their area Ting etc. Cable branding beats these greenfield players even if fibre has become a brand of sorts......ATT & V as overbuilders are a problem for cable guys, no doubt....double play (FTTH & Cell) with owner economics is a great bundle for provider AND customer........luckily for cable guys, T & VZ are in a desperately capital intensive core business where FTTH projects are the first domino to fall in a capex cutting cycle.....

Edited November 24, 2021 by changegonnacome

[Gregmal]

Yea whats kind of funny, in light of the content @LearningMachine mentioned, is that in the situation I shared with the fiber rollout at the HOA....the details werent exactly great and there wasnt much else given, but when people heard "fiber" it was met with a lot of "ooh, ahh, yes sign me up"... in relation to the current service, one word sold them on parting ways with $1200.

[Spekulatius]

@LearningMachine I believe SHEN cost to connect a home to fiber is lower than cable because both are in different areas. their FTTH clusters target higher density areas than where their legacy cable networks are. I believe that’s why the costs are lower with Glo (FTTH).

 

SHEN isn’t cheap and if you look at valuation metrics, make sure to account for the $400M in tax payment outflow in Q4 this year. This tax payment is related to their sale of tower asset that funded the large ~$18/share special dividend paid earlier this year.

 

They do seem to be excellent operators (look at the LT stock chart) and their disclosure is excellent too and gives you some yardsticks how a good operator views the economics.

 

Their 5G “Beam” broadband effort targets a very rural area in WV and they only have speeds up to 100MB. My sense is that they don’t feel they could compete with either cable much less fiber so they target areas that likely will have neither for the forseeable future. Even there, they seem to have trouble signing up customers, at least that’s my impression.

 

The whole broadband space is becoming more interesting because now more  technologies are competing with each other 5G, FTTH, cable, so it is interesting how it will shake out.

 

I am watching closely FYBR,(small position), CNSL(ambitious FTTH buildout but weak financial profile ) T ( interesting because of corporate restructuring and surprisingly good FTTH signups) and TMUS (looks somewhat expensive but they have by far the best growth profile and spectrum assets to implement 5G at the lowest costs with a possible entry into broadband).

 

So the whole space that has long been stagnant sees changing dynamics.

[Spekulatius]

If any FIOS customer want to save some money here is a great deal:

https://slickdeals.net/f/15417262-verizon-fios-black-friday-sale-200mbps-or-300mb-internet-w-12-months-of-disney-and-amc-for-39-99-mo-save-10-mo-on-unlimited-wireless?page=9#comments
 

I have FIOS 400MB/$60 and changed it to 200MB/$40 month just calling in. I don’t get the Disney + etc that way though but it’s easier than cancelling and existing account and setting up a new one.

 

From my experience , downgrading the speed from 400MB to 200MB makes no difference. I had upgraded from 100MB to 400MB a few month ago for a few bucks more and no one in Spek’s household even noticed (I didn’t tell them).

Edited November 25, 2021 by Spekulatius

[Pelagic]

14 minutes ago, Spekulatius said:

From my experience , downgrading the speed from 400MB to 200MB makes no difference. I had upgraded from 100MB to 400MB a few month ago for a few bucks more and no one in Spek’s household even noticed (I didn’t tell them).

 

This is kind of my question regarding fiber. ATT just did a rather impressive show of force in my neighborhood stringing fiber lines with a couple dozen trucks over the course of a week and all their line workers talked up the benefits of fiber when I spoke to them. But is switching from my 400/20 Comcast plan really going to make a difference for me or the average consumer?

[KJP]

On 11/24/2021 at 7:30 AM, Spekulatius said:

 If you do the math,  a broadband connection is valued by the market at $6-7k per subscriber, to if you build at $1.5k per connection and manage to sign up 30% you are at $4.5k all in cost per customer which is less than $6-7k.

 

 

Is part of the existing $6-$7k per subscriber valuation arising from those businesses have relatively little overlapping broadband competition?  To make up some numbers, is a no competition broadband subscriber worth $8 or 9k per sub and a broadband sub with overlapping broadband competition worth only $4 or $5k?  That to me is the issue the overbuilders have to consider.  They can't look just at incumbent economics.  They have to determine whether the economics make sense after they've introduced competition.  In other words, the overbuilding may not create any value for the overbuilder; it may just destroy a significant part of the economic value of the incumbent business.  That is also why overbuilding may not make sense even where it appears that a new connection can be built at far less than the value ascribed to a current monopoly connection.  It's also why overbuilding Charter or Comcast footprint is likely much different than overbuilding someplace else.

Edited November 25, 2021 by KJP

[Gregmal]

That’s been the point I’ve raised quite often with this stuff. Who really notices the incremental difference enough to warrant a waste of time calling and dealing with the provider(an experience that often times is downright awful)? Let alone paying more?

 

I have Sprint and am fully aware how awful sprint is for phone service especially in my area. I have Optimum and they are mediocre too. But “awful” is what? Occasionally a dropped call or static for a few seconds or a couple seconds extra to load a webpage? That’s really not that big a deal and to me, not worth wasting time and money to change.

[Spekulatius]

28 minutes ago, KJP said:

 

Is part of the existing $6-$7k per subscriber valuation arising from those businesses have relatively little overlapping broadband competition?  To make up some numbers, is a no competition broadband subscriber worth $8 or 9k per sub and a broadband sub with overlapping broadband competition worth only $4 or $5k?  That to me is the issue the overbuilders have to consider.  They can't look just at incumbent economics.  They have to determine whether the economics make sense after they've introduced competition.  In other words, the overbuilding may not create any value for the overbuilder; it may just destroy a significant part of the economic value of the incumbent business.  That is also why overbuilding may not make sense even where it appears that a new connection can be built at far less than the value ascribed to a current monopoly connection.  It's also why overbuilding Charter or Comcast footprint is likely much different than overbuilding someplace else.

I don’t know the answer to this question, but if you build FTTH at 1.5k a pop and manage to signup 30% of the connections, then I think you are doing OK. This is very achievable when competition is weak (only DSL). If there is already an incumbent or worse 2 on cable with decent speeds, the economics don’t work.

The underlying assumption is that once you lay fiber a d have a decent market share in a semi rural market, who is going to come in and stir the pot? It does not make sense unless the challenge can put in fiber much cheaper per pop.

 

The key to FTTH  buildout is to have low costs , which means sufficient density and weak competition (ADSL). That way, you can gain market share quickly. Without these two, the FTTH buildout economics are challenging. The high density areas are mostly picked over as there are generally two competitors already. The smaller FTTH builder that I know pick the areas carefully. 
The larger ones like ATT and CNSL target areas where they have existing customers on DSL that they can switch over to FTTH once build out and hence future proof the customer relationship.

Edited November 25, 2021 by Spekulatius

[Spekulatius]

32 minutes ago, Pelagic said:

 

This is kind of my question regarding fiber. ATT just did a rather impressive show of force in my neighborhood stringing fiber lines with a couple dozen trucks over the course of a week and all their line workers talked up the benefits of fiber when I spoke to them. But is switching from my 400/20 Comcast plan really going to make a difference for me or the average consumer?

It really depends. I did make an A-B test(FIOS and Charter Cable) in my former house in Long Island and FIOS was rock solid while Charter had issues (equipment was lousy, connection sometimes unreliable). I played an online game at this time and did a fair amount of investigation - ping measurement, ping tracing) and could identify infrequent issues that were even evident sometimes using regular internet or streaming, especially on high usage snow days.

Speed is actually not the main factor - I had speeds from 100Mb to 1Gb from the two vendors and everything at 100MB and above feels pretty much the same. I have  FIOS in my current house and still use the same Gateway router I bought in 2015 It’s rock solid with good wifi signal everywhere ( my house is quite large -3500 sqft). I do agree that speed (and price sells) but I don’t think it is the main factor determining a good broadband service.

[KJP]

1 hour ago, Spekulatius said:

I don’t know the answer to this question, but if you build FTTH at 1.5k a pop and manage to signup 30% of the connections, then I think you are doing OK.

 

 

It depends on ARPU, which ought to depend on competition.  $1500/passing * 30% = $5000 capital cost per subscribed passing.  At an ARPU of $90/month (Ting's projection) it produces $1080 in annual revenue.  If incremental fiber margins are 90%, that's almost a 20% (972/5000) unlevered return, though I suspect 90% is high for a smaller operator.  If you have enough scale to cover overhead, 20% unlevered unit economics looks good.  I didn't include anything for sales & marketing costs to acquire the sub, though, and that could be significant for a new entrant with no brand name.

 

But if your ARPU is $60/month it produces $720 in annual revenue.  If incremental gross margins are only 80%, that's down to around an 11% unlevered return (572/5000), which I think it's starting to get dicey.  I haven't included a cost of capital for the time it takes to get to 30% penetration, or, as mentioned above, anything for sales and marketing to acquire the subscriber.  For all of those reasons, I agree that a FTTH overbuild seems to make sense only where the competing product is weak, such that the overbuild can get significant penetration at high monthly prices.

 

I'm also skeptical of the $1000-$1500 cost claim.  Ting's history does not yet appear to support that number.

Edited November 25, 2021 by KJP

[changegonnacome]

3 hours ago, Spekulatius said:

I do agree that speed (and price sells) but I don’t think it is the main factor determining a good broadband service.

100% true - but to the average Joe Schmo - its that speed number & brand/price/signup offer/friction that moves new customer adds..….not underlying tech….and to your point on speeds and people not noticing….your exactly right..…I’ve yet to come across a household that can really outline rationally to me a need for anything more than maybe 250mbps down….do the math on say FIVE concurrent 4k UHD streams, each stream requiring max 50mbps down. I mean this is 250mps down…….4k UHD content is a rare bird & rarer still for five individuals in a household to find & watch those sources concurrently. Cable plant with a solid pathway to 10 gigs down has a LONG runway.

 

Barring some massive technologically change in the near future (say next FIVE years) - I think fixed data providers are going to find it hard to push speeds beyond 1 GIG on to consumers with pricing power…..there comes a point where perceived speed increases underpinned by no real requirement need = diminishing returns…..beyond 1 gig feels like that number to me. 

Edited November 25, 2021 by changegonnacome

[LearningMachine]

On 11/25/2021 at 11:10 AM, KJP said:

 

Is part of the existing $6-$7k per subscriber valuation arising from those businesses have relatively little overlapping broadband competition?  To make up some numbers, is a no competition broadband subscriber worth $8 or 9k per sub and a broadband sub with overlapping broadband competition worth only $4 or $5k? 

 

@KJP, I really like what you're saying here. 

 

This is also a risk for those buying cable companies.  Imagine buying an asset with 20% down and 80% funded with debt, but then the asset value drops by 28.6% from $7K per subscriber to $5K per subscriber.  Ouch, suddenly equity is underwater. 

[KJP]

15 minutes ago, LearningMachine said:

 

@KJP, I really like what you're saying here. 

 

This is also a risk for those buying cable companies.  Imagine buying an asset with 20% down and 80% funded with debt, but then the asset value drops by 28.6% from $7K per subscriber to $5K per subscriber.  Ouch, suddenly equity is underwater. 

 

Yes, like Malone seems to be saying, I think the biggest risk to cablecos is the availability of enormous amounts of very lost cost capital to overbuilders.  Someone willing to accept low returns on a massive investment can hurt the cablecos.  I think that's probably true of any capital-intensive business that is offering a commodity good/service, whether that's rocks, cobalt, or moving bits. 

 

Historically, I think this risk has not materialized because overbuilding is time-consuming and there were real costs to capital.  The overbuilder has to deal with all sorts of local permitting requirements, has to find local employees, etc.  So, before they get too far along, they realize the returns are poor and stop, e.g., Google, Verizon Fios (historically).  Part of the cableco thesis likely is "this time is not different."  Part of that is whether the most dangerous potential competitors (Verizon and AT&T) have better things to do with their capital. 

Edited November 26, 2021 by KJP

[LearningMachine]

On 11/26/2021 at 12:05 PM, KJP said:

Yes, like Malone seems to be saying, I think the biggest risk to cablecos is the availability of enormous amounts of very lost cost capital to overbuilders. 

 

@KJP, interesting example of how low interest rates can result in extra supply, and in turn, lower prices (not inflation) for consumers in some sectors. 

[Spekulatius]

My quick math on $SHEN is ~$77M in 2021 Capex creates about 38.5k in homes added (this was from Q3 2020 to Q3 2021 so a bit of a timing mismatch). Sp this translates into 77M/0.0385M = $2000 per connected home in Capex. this is a bit higher than the cost per  homes added in their IR presentation ($1000-1400) but lower than the number from Tucsow which is about $2300) . I think this Capex number may contain some expenses for future home connections but I am not sure. Their ARPU for Glo fiber $74 9dropping from $79) , so they make $888 in revenue from each connection.

 

If the $2000/connection is the true cost, this would not be a great return, if the $1000-14000 is given correct, it looks much better. Again this is a cost and landgrab game. if you need to compete against a cable co that charges $50 and offers a few hundred MB/sec in a community, I don't think a competing fiber offering that comes in at $75 will do that great. If the only choice is DSL for $30-40 then I think many will upgrade to fiber. I think the greenfield Fiber builders go for the latter mostly except in communities where they can make connections much cheaper.

https://investor.shentel.com/static-files/0d64f171-f43b-41b1-8257-8b07e8d327af

Edited November 29, 2021 by Spekulatius