Richard Greenfield, Pali Research

Wall Street media analyst Richard Greenfield of Pali Research is telling investors that the era of quick cash from “digital phone” service customer additions is probably coming to an end.

Greenfield penned a research note last week pointing out that despite the blizzard of postcards, mailers, and wall-to-wall advertising cable operators do to promote their “digital phone” services, it’s getting tougher to sign up new customers.  Mike Farrell in Multichannel News condensed the marketspeak down:

In a research note, Greenfield noted that industry-penetration leader Cablevision Systems, which has telephony in 40% of its homes passed and more than 60% of its basic-video base in a triple-play bundle, took six years to reach those milestones. Time Warner Cable after five years has about 15% penetration (27% of subs in a bundle); Comcast, four years into telephony, has 13% phone penetration and 24% of its subs in a triple-play bundle.

The year 2008, the analyst noted, was the first that net telephony additions fell for both Comcast and Time Warner Cable.

“While Cablevision is way ahead of its peers in telephony, the question is now becoming, will its peers be able to get to even 25% penetration, let alone the 40%-plus levels Cablevision has achieved or is the opportunity to further cement the bundle simply dwindling by the day?” Greenfield asked.

For the uninitiated:

• “Homes passed” refers to homes where cable service is available;
• “Triple play bundle” refers to customers who take three services – cable TV, Internet, and telephone service in a bundled package from a provider;
• “Penetration” refers to market share.  In the case of Time Warner Cable, only 15% of their subscribers sign up for “digital phone” service, but the number is higher for those with a bundled package.

Greenfield, who often annoys cable companies and instigates angry press releases from some cable trade associations, represents the Wall Street investor types, who are not pro-company or pro-consumer.  They are simply pro-money for investors.

Investors are very concerned this year about cable company stock value.  They worry customers are starting to cancel cable television packages (or at least downgrade their service to get fewer channels), and are now also concerned telephone revenue will not grow at the traditional rate it has since “digital phone” service was introduced.

Broadband service is the exception.  It remains highly profitable and is continuing to grow even during hard economic times.

Stop the Cap! believes that cable operators will look more and more to broadband profits to help prop up their stock price, making it imperative that broadband service deliver as much profit as possible, while operators crack down on costs.  Internet overcharging schemes, such as limiting and discouraging access, raising prices, or a combination of both can reduce costs even further while maximizing profits, particularly in markets where limited or no competition exists.