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MAVIS SCANLON
There could be money for all Enticing offers for DSL and satellite services are hitting consumers fast and furiously these days.
Verizon has blanketed the airwaves with ads promising free installation and one month's service. You almost can't turn on the radio anymore without hearing a pitch from DirectTV. With the holidays approaching, the messages of "great customer service" and "one month free" are bound to spill into the category of overkill.
So who, exactly, is listening?
Consumers looking for the best deal, for one thing.
Investors are surely paying attention, too, to see which service is gaining even the hint of an upper hand. However, by concentrating on a share point here and there, they may be missing the big picture.
The specter of competitive services stealing cable's core audience is just one reason cable stocks have withered from late 1999 highs. Add to that a weak equity market, looming regulatory issues, such as open access and general worries over the state of the cable networks, and we are looking at beginning 2001 on a much more subdued tone.
Greatly reduced valuations have made cable stocks look like bargain specials. Surely there must be plenty of investors waiting in the wings, looking for convincing proof that cable's long-awaited advanced services will bump up the bottom line.
At least for the next few years, it looks as if that growth will kick in.
Francis L'Esperance, managing director of Veronis Suhler Associates, says demand for digital cable is expected to grow at roughly 40% over the next five years. That means we might see about 43 million homes equipped with digital cable in 2005, up from about 8 million today. That's a natural base through which cable operators can layer additional services, such as cable modems.
How does the industry get to the next level of penetration? A look at VCR penetration levels is not all that encouraging.
After getting into 46.3% percent of television homes by 1987, it took VCR manufacturers another 15 years, until 1999, to occupy a place in 86.3% of television homes.
Investors don't want to wait around while growth of basic cable subscribers stagnates and new service acceptance creeps up a couple of percentage points every few years.
To that end, investors have spread their bets. Take Paul Allen and his Vulcan Ventures investing vehicle, which infused Charter Communications with more than $750 million as the company went public last year. Vulcan also funded upstart RCN last year with a cool $1.65 billion.
Right now, cable operators have a fat pipe into consumers' homes through which they can deliver multiple services, giving them a big lead. They can keep that lead with good execution. And the investing community will notice
Even if they don't get to 90% penetration for advanced services, there's still plenty of money to be made. As more than a few analysts and portfolio managers have pointed out, it's a very big market - and not necessarily one in which the winner takes all.
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