For decades, cable has been king of internet service, providing fast and reliable connections for millions of Americans. But sector leader Comcast ($CMCSA) has steadily lost ground, and investors’ confidence, as competitors build out fiber and other fixed wireless infrastructure.
Over the past two weeks, Comcast’s stock ($CMCSA) dropped 16% to $21.79 after CFO Jason Armstrong admitted the company’s customer base was waning at a Goldman Sachs event on Sept. 9. The plunge was felt by others in the telecommunications sector, including AT&T ($T), Verizon ($VZ) and T-Mobile ($TMUS), with Comcast and Charter ($CHTR) taking the greatest hits.
The decline of cable has been known and expected for years as wireless technology advances and players like Verizon expand their fiber networks. But Comcast’s spinoff of subsidiary NBCUniversal places the company firmly back in the cable biz. So Armstrong’s pessimistic comments shook a usually-steady industry and underscored the company’s vulnerabilities as it loses its strength in media operations.
“We are in a situation right now where cable continues to bleed subscribers because they are struggling to compete with fiber and fixed wireless,” said Vikash Harlalka, lead cable analyst for New Street Research, a London-based research institute.
Comcast’s stock value has been on a steady decline; one analysis calculated over 1,315 hedge funds have reduced their ownership in Comcast in the past quarter.
Comcast, which also includes NBCUniversal and Sky, has reported positive earnings in its media sector in the past quarter, which includes brands like NBC, Peacock, Telemundo and Bravo. However, growth in media hasn’t resolved losses in broadband, leading Comcast to spinoff NBCUniversal into its own company with the hopes of a better market position for NBCUniversal.
Analysts expect the split, which will be formalized next year, to position Comcast for a merger with cable company Charter to create a single nationwide cable business.
“That’s been kind of the holy grail for the cable industry is to put the whole industry together into one giant company,” said Mike Hodel, director of research for communications services at Morningstar Equity Research. “You can save on costs, market nationwide, build a brand that people know across the country.”
Some of Comcast’s problems are self-made—poor customer service, high prices and slow speeds are frequent complaints from subscribers—but others are indicative of larger sector trends as satellite and fixed wireless access give customers more options.
“Broadband used to be the only real game in town, now you’re getting hit [by competition] on the lower end [of prices],” said Colby Howard, president of Heron Events at Heron Intelligence, a markets analysis group.
In the past, changing internet providers was a hassle for those outside of large metro areas, sometimes impossible. But rapidly expanding service providers and new entrants, like SpaceX, provide greater optionality for in-home internet.
“Fixed wireless continues to be pressure on [Comcast’s] subscriber additions; that’s no different from the past several years,” Armstrong said at Goldmann Sacch’s Communacopia + Technology Conference. “Fixed wireless has probably taken more share than we thought. We got satellite coming and fiber is encroaching in our territory.”
Joe Leider, a Colorado resident and more recent active investor, purchased shares of Comcast a little over a year ago because he saw the company as having a sticky customer base. After Armstrong’s comments, Leider watched the stock plummet and recover a few percentage points the next day, when he sold.
“I sold it because I’m like, man, there’s better stuff out there,” Leider said. “There’s better valued stuff.”
Fiber internet connection is generally seen as faster and more reliable than cable, but it’s expensive and time-consuming to build, Harlalka said. As of this year 60% of U.S. households have access to fiber, overlapping with cable’s existing customers and creating market competition.
“It’s not so much that Comcast is losing, although they are losing shares, but they were dominant for so long that now you’re seeing a resetting of the marketplace with a new level of competition that you hadn’t had in the past,” Hodel said.
As fiber networks expand, analysts and investors expect cable’s market share to diminish, and with it, its stock value.
“Customer losses over the next few years is baked into investor expectations,” Harlalka said. “It will take a monumental effort for [cable companies] to turn it around.”