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As 5G nears, it’s expected to bring lightning speeds, low latency, and the ability to close the gap between telco and cable. AT&T/Verizon are both making significant strides, but we believe cable’s network infrastructure is still superior. We estimate cable will capture 90%+ of HSD net adds in ‘18, driving growth for our favored name Charter. We estimate Charter’s net adds will grow at an even faster pace than Comcast in ‘18/’19. We remain OP with a US$400/US$11.50 TP on Charter/ WOW; we lower our multiple on WOW to 7.0x from 8.0x to reflect competitive pressures.
The DOCSIS 3.1 roll-out continues…
#1 Comcast: the roll-out will be 70-75% complete by year-end. Comcast kicked off its DOCSIS 3.1 roll-outs in early ’16 and has since launched gigabit speeds in 25+ states. Upcoming roll-outs are focused on PA, VA, CT, and VT. Comcast has trialed multiple pricing options like base rates of US$105/mo or US$80/mo with a one-year contract; pricing is flexible based on location. The operator has also rolled out Gigabit Pro, which offers multi-gig speeds in 25+ states with some offers priced at US$300/mo. Comcast is poised to surpass 1m HSI net adds (819k YTD) in ’17 per management commentary; we model ‘18/’19 net adds of 1.07m/1.03m.
#2 Charter: Aloha Oahu. The first residential 3.1 deployment is in Oahu, where subs can get 1Gbps for US$105/mo; concurrently, Charter doubled minimum speeds there to 200Mbps. It recently announced the launch of gigabit speeds in key markets and will likely boost base speeds footprint-wide; we note the 3.1 rollout is complete. Charter should continue taking share in ‘18/’19; we model net adds of 1.35m/1.35m.
#3 WOW: on track to 95%. Gigabit speeds are available in AL, IN, MI, OH, and TN with plans to expand deployment to 95% of its footprint by Feb. ’18. The service is US$80/mo with a two-year contract. We model ‘18/’19 net adds of 40k/73k.
While in telco land, it’s all about fiber/spectral efficiencies
#1 Verizon: multi-use fiber. One Fiber in Boston/Sacramento is a grid approach to build-outs with use cases including: small cell densification, raising Fios speeds, and 5G. In ‘16/’17 it gathered assets including: 1) XO: 1.2m fiber miles; 2) Straight Path: 28GHz/39GHz spectrum; 3) Corning: deal to buy 12.4m fiber miles p.a. in ’18-’20; and, 4) WOW: 1.2k fiber miles in Chicago. Verizon identified 1Gbps speeds as the first use-case of 5G and will roll it out to Sacramento and other 3-5 cities by 2H18. Its market-by-market focus could drive upside to our ‘18/’19 net adds of -170k/-248k.
#2 AT&T: the largest fiber footprint and growing. Its fiber footprint spans 1.1m+ route miles. It continues to lay fiber in the US as part of the FCC’s DirecTV buildout requirements and expects to reach 12.5m+ new locations (14m total) by mid-’19; it also has ~8m business locations with fiber in the building or near it (the industry standard is 1k ft), and 20m U-verse FTTN builds totalling 42m locations. AT&T is committed to expand HSI (50Mbps+) to 50m locations over the next few years.
Through various technologies, AT&T will offer a range of HSI solutions: fiber, U-verse HSI (using its Gfast technology to drive higher speeds over copper/coax), and 5G. As of 3Q, it was offering 1Gbps connection in 5.5m locations across 55 metro areas. The 1Gbps speeds are offered at US$70/mo who bundle with other AT&T services or US$80/mo standalone for year 1. We model ‘18/’19 broadband net adds of 190k/202k.
By Amy Yong, Analyst, Macquarie Capital (USA) Inc
December 20, 2017
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