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Can T-Mobile's Threat to Disrupt Cable TV Hurt CMCSA, CHTR?

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T-Mobile US (TMUS - Free Report) CEO John Legere recently lambasted cable TV industry behemoths, Comcast (CMCSA - Free Report) and Charter Communications (CHTR - Free Report) for their shabby treatment of customers. He also hinted at plans to launch cable TV service in 2019.

The wireless carrier has been anticipated to launch its own video service since the acquisition of Layer 3 TV in January 2018. In a recent blog post, John Legere announced the company’s intentions to take on “Cableopoly” on all fronts, including TV and broadband.

Should T-Mobile CEO’s threat really bother cable companies, particularly Comcast and Charter? Let’s dig a bit deeper to find out.

Subscriber Loss Bothering Legacy TV Companies

Rapid cord-cutting amid significant competition from cheaper streaming service providers like Netflix (NFLX - Free Report) and Amazon Prime has significantly lowered subscriber base of cable companies. Per Research firm MoffettNathanson, 1.1 million homes have cut the cord in third-quarter 2018.

Satellite services like DirecTV and DISH Network (DISH - Free Report) were hit hardest in the quarter. DISH lost approximately 341K net Pay-TV subscribers and 367K net DISH TV subscribers in the third quarter. In comparison, AT&T’s traditional TV business (including DirecTV and AT&T U-Verse) lost 346K subscribers.

However, both Comcast and Charter fared better than DISH and DirecTV. While Comcast lost 106K video customers, Charter lost 66K in third-quarter 2018.

Comcast, Charter Benefit From Diversified Portfolio

Nevertheless, both Comcast and Charter are benefiting from diversified portfolio that not only includes video and voice services but also Internet. Increasing Internet subscriber base is a key catalyst for both the companies.

While Comcast added 363K high-speed Internet customers, Charter added 266K residential Internet customers in the third quarter.

Comcast is expected to benefit from strong adoption of Xfinity Home. Completion of the nationwide rollout of the company’s wireless services under the Xfinity Mobile brand is a key catalyst. Notably, Xfinity Mobile is the nation’s first wireless service that combines the nation’s largest and most reliable 4G LTE network with 19 million Xfinity Wi-Fi hotspots to deliver a great wireless experience, which is cost effective.

Comcast Corporation Revenue (TTM)

 

Comcast claims that customers can save up to 30% on their monthly wireless bills with Xfinity Mobile service. This is expected to boost subscriber base.

Moreover, Sky’s acquisition helps Comcast to expand in Europe, where pay-TV penetration is rapidly increasing. Sky operates in the United Kingdom, Austria, Germany, Ireland and Italy, and reaches almost 23 million customers. Its popularity is primarily driven by offerings like the English Premier League (EPL).

Notably, Sky has the rights to show 128 EPL soccer matches for three seasons, from 2019 to 2020. Moreover, Sky has the exclusive rights to distribute HBO’s content like Game of Thrones. It is also involved in developing original content.

Meanwhile, Charter is expected to benefit from the launch of Spectrum Mobile service under mobile virtual network operator (MVNO) reseller agreement with Verizon.

As of Sep 30, 2018, Charter had 23.3 million residential Internet customers. More than 80% of these residential Internet customers are subscribed to tiers that provide 100 Mbps or more speed. Moreover, the company has doubled the Internet speed to 200 Mbps for the new and existing Spectrum Internet customers at no extra cost.
 

 

During the quarter, the company further expanded the availability of its Spectrum Internet Gig service (940 Mbps) to a number of new markets. The service, which uses DOCSIS 3.1 technology, now covers approximately 95% of its footprint.

Moreover, partnership with Comcast to develop back-end software to support services for Xfinity mobile offering will significantly help Charter in saving costs.

Conclusion

T-Mobile is benefiting from improvement in mobile plans, stellar network performance, deployment of LTE-U technology and offering of attractive unlimited data. This is supported by improving scale, healthy free cash flow generation, strong liquidity and spectrum assets that provide credit support.

The company is also making progress on its pending Sprint Corporation merger as it recently secured approval from the Committee on Foreign Investment in the United States (CFIUS). Additionally, Team Telecom, which comprises the U.S. Department of Justice, Department of Homeland Security and Department of Defense, gave its green signal to the proposed deal.

Although these are positives for T-Mobile, the company is likely to find it difficult to dethrone Comcast and Charter, at least in the near term, due to the aforesaid factors.

Currently, T-Mobile, Charter and Comcast has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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