Cable Has the Edge Over Telcos - Barron's

Barron's Tech Trader Eric Savitz says recent Q2 earnings results give him every reason to believe telcos are being owned (or pwned) by the cable industry.

Verizon (VZ) lost 1.7M access lines last quarter, and 171K DSL lines - the first time ever a U.S. telco has lost net DSL customers. It did add 176K FiOS video subs and 187K FiOS broadband lines, but Bernstein's Craig Moffett is startled by the fact that growth in both slowed from Q1 - and that the 6% gain in FiOS broadband customers was despite a 33% increase in coverage. AT&T (T) lost almost 1M residential primary access lines, and added 170K U-verse video customers.

Contrast that with Comcast (CMCSA) and Cablevision (CVC). CMCSA added 0.5M new phone customers, 278K broadband accounts, and 320K digital cable lines, while losing 138K basic cable subs. CVC added 120K digital video subs, 52K broadband lines and 81K voice lines.

Last week CVC president James Dolan told analysts during the company's earnings call he "has a strong desire to close the value gap" between its deflated stock price and its true worth - adding it is "considering and actively exploring alternatives that may close this gap" - sending shares up 15%. Possibilities include initiating a regular dividend, a large one-time cash payout, or a share buyback. And never discount the possibility of the Dolans making another pass at taking the company private. Moffett thinks shares could almost double to $45.

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In an earlier post, Savitz looks at the possibility of a renewed Dolan courtship in more detail.

Larry Dignan says everyone's a loser in the telco/cable war.

Why will all of these companies lose in the broadband wars? Telecom giants are a thorn in Comcast’s side, but aren’t taking a bunch of customers. Meanwhile, all parties are spending heavily on marketing.

Comments

[whidbey:]

But Eli

Did Barron's mention that we hate Comcast and wish them evil? Can firm survive if the pricing and delivery if ones service is disgusting and totally unmindful of consumer? Ever wait a day for a service only to be told it will be another day, but which they can not say. I despise ComCast for their service, attitudes and pricing. Others do too maybe quite a few of us do. Other than than they they are mediocre.

2008 Aug 03 07:34 PM

[techy:]

whidbey..

isnt it because cable companies have monopoly in their area....except for dish network.

2008 Aug 03 08:29 PM

[Dice Man:]

So, Verizon's net count is actually up because DSL users are opting for FIOS, which includes high speed internet. Verizon is betting their own triple play of FIOS, TV/INTERNET/PHONE will cover the migrations from their own DSL, and even those who are cancelling their home lines because many of them have Verizon CELLPHONE service..Hellloooo?

Barrons conveniently disregards the overall net-adds, plus the fact that Verizon Wireless is contributing mightily to Verizon's overall performance even WITH the home landline disconnects. If everyone in your home has a cellphone, why do you need a landline?
It's not just cable triple-play customers who are cancelling the landlines.

Hey Barrons..where to you get these writers?

Poor story and poor research.

People flee cable companies because their customer service is downright rotten. I know. I did.

2008 Aug 03 09:30 PM

[BudH:]

I love my comcast service. Some people hate comcast, walmart and mcdonalds irrationally. Along with oil companies.

2008 Aug 03 09:31 PM

[Alex Filonov:]

I agree. Everybody's losing. I'm not sure why, but if you look at the charts, Comcast is no better performer than Verizon or AT&T. I don't know what market tells us, except that it hates all telcos and all cable companies.

2008 Aug 04 12:02 AM

[cellboy:]

re Dice Man's comments....

the issue for Verizon and ATT is this -

Swapping landline for cell phone service is treading water at best.
Landline is on depreciated copper in the ground. Cell has good margins, but not when you lose a pure margin customer on copper.

Plus - VZ wireless is only 50% owned, so lose a 100% owned landline for a 50% owned wireless.

I'm not thrilled with Comcast either - I think Barron's is just making the point that FIOS (esp. with new coverage that should juice subscriber count) won't cover DSL declines..

2008 Aug 04 12:22 AM

[squawk:]

Cable is prevailing because in the short term, the telcos still have a long way to go. A robust multichannel video platform cannot be built & market developed overnight. It takes years. Kudos to Verizon for its FiOS effort. Over time, it will compete & eventually surpass cable in offering a robust platform to consumer. But in the meantime, it will continue to lose copper-based lines. This conclusion does not take a rocket scientist.

In contract, AT&T U-Verse is a loser, & has been from day one. AT&T is too conservative in their investment, poor on execution, to compete with cable for the foreseeable future. They, too, will continue to lose subs relying upon copper-based services. Their U-Verse will never really take off, nor compete with cable, except on price on a small scale basis. As a result, it's just a matter of time before AT&T finds itself b/w a rock & hard place. And then it may be too late.

Bottom line, we're only in the 4th or 5th inning of this "game." Game's not over 'til the final out, but AT&T is running out of opportunities for every inning it fails to realize that the only way it can compete with cable is by pushing FTTH.

2008 Aug 04 11:22 AM

[Jimbo:]

I am a current Comcast customer for broadband because they are the only game in town. Embarq spends millions on direct mail and newspaper advertising to my home but wont upgrade their landlines in my neighborhood. So much for corporate intelligence. I would leave Comcast in a New York minute if any alternative were possible. Comcast is arrogant, snotty,incompetent. My wife sent a voided check to Comcast so they could deduct the monthly bill from our account and those idiots lost they check!!

2008 Aug 04 11:29 AM

[titans:]

this guy savitz is a notorious basher of telco companies, while he cums if you mention anything to do with cable companies.it's really sad that Barron's allows a biased writer to work for them...maybe they need space to be filled in their paper ? this same guy savitz back in Nov. 2004 wrote a telco bashing article in Smart Money as well & praised the cable companies....hey savitz, get a life & stop bashing the solar stocks as well.get a date for saturday nites so we don't have to see your crap biased writing anymore !!!

2008 Aug 04 03:54 PM