Rising Again: Big Cable Looks for Continued '08 Growth

After a lengthy slide dating to last summer, major cable stocks have rebounded nicely since most hit 52-week nadirs earlier this year—and Merrill Lynch analyst Jessica Reif-Cohen says the trend will continue throughout ’08. "We believe cable is a safe haven in this environment," said Reif-Cohen of a struggling US economy at the company’s London conference Thurs. "We anticipate increasing market share in voice and data for all of the large cable ops." The forecast led appearances by Comcast svp, investor relations Marlene Dooner and Time Warner Cable CFO Rob Marcus, who both explained why they agree with Reif-Cohen’s assessment. In short: non-video services. For Comcast, such services now represent 65% of rev growth and are growing at twice the rate of video, said Dooner. The MSO’s strategy of offering multiple broadband speed tiers has worked well, she said. Two-thirds of customers interested in Comcast’s economy tier are deciding to take its flagship service instead, and more customers are adopting the MSO’s high-end "blast" service than the economy alternative. And, she said, Comcast is "capturing market share from DSL at an accelerating pace." 68% of 1Q gross HSD adds came from DSL, up from 38% in 1Q06. Time Warner has recently focused on multiple speeds as well, and its premium product is "flying off the shelves," said Marcus, who estimates that 65-70% of the MSO’s HSD subs are coming from DSL. And with respect to phone, penetration of which averages 13% across its footprint, Time Warner hasn’t "approached anything nearing a ceiling," he said. Both execs continue to see tremendous upside in the SMB market. Time Warner only launched commercial voice services this year, leaving ample room for improvement, and Comcast has seen 70% of new commercial phone subs tack on data services. Bullishness also stems from the Sprint/Clearwire jv, which Marcus said offers important "flexibility" in wireless service offerings. Comcast and Time Warner will acquire an approx 7% and 4% stake, respectively, in the venture’s new company through their investments.