SNL Kagan Expects Continued Growth for Cable Operators

Revenues for cable MSOs are forecasted to grow from $81 billion in 2008 to $120 billion by 2018

MONTEREY, Calif. — Cable operators are facing a more competitive environment yet remain well-positioned to take advantage of the demand for advanced services. According to research published by SNL Kagan in its 28th annual “Broadband Cable Financial Databook,” U.S. cable operators are expected to add 48 million subscribers to advanced services over the next decade. Although the growth in RGUs (Revenue Generating Units) and falling capital expenditures point to increased free cash flow, growth is expected to be moderate due to intensifying competition from telco video providers and DBS.

Still, cable MSOs are expected to maintain their subscriber base over the medium-term, thanks to the competitive advantages they enjoy. As of the end of the second quarter 2008, there were 64.6 million basic video subs served by cable MSOs, 31.0 million DBS subs and 2.1 million telco video subs. SNL Kagan’s five-year outlook estimates 64.3 million, 33.4 million and 11.3 million in each category respectively.

Cable’s larger footprint and growing multiplicity of services will allow the sector to remain the largest provider of consumer entertainment and communications in the 10-year outlook. Thus far in 2008, cable MSOs have posted impressive revenue and RGU gains, topping telco additions of HSD subs and boosting voice subs as telcos face persistent line losses.

Robin Flynn, senior analyst at SNL Kagan commented, “Cable MSOs have been able to gain traction from technological advances, not only because they stand to reap basic sub gains from broadcasters’ digital transition in February 2009, but they are also executing their own digital transition to reclaim video bandwidth and expand their capacity to offer higher-margin services, faster Internet speeds and more interactive services, thus sustaining growing ARPUs.”

The cable industry continues to post impressive growth statistics, including:

• Cable RGUs increased from 137.6 million at year-end 2006 to 151.7 million in 2007 and are on track to grow to 164.4 million by year-end 2008.
• Cable VoIP homes marketed will leap from 68 million at the end of 2006 to an estimated 115.6 million by year-end 2008.
• Cable VoIP subs have gone from 6.4 million at year-end 2006 to 12.6 million by year-end 2007 and could reach 18.1 million in 2008.
• High-speed data penetration of basics was 53.1% at year-end 2007 (vs. 39% at year-end 2005) and could grow to 58.3% by year-end 2008.
• Digital cable subs now surpass 37 million and could reach 42 million by year-end 2008.
• In 2008, total residential revenue is expected to grow 7.9% to $81.3 billion, at an average ARPU of $104.79 (vs. the $95.84 of 2007). Commercial revenue could go from $3.9 billion in 2007 to $4.9 billion in 2008.

Reports such as “Broadband Cable Financial Databook” are available exclusively as part of the SNL Kagan Information Service. For more information on this report and other media and communications data within the SNL Kagan Information Service, call 866.296.3743 or email: SNLKaganSales@snl.com.