U.S. Cable & Satellite Broadcasting

U.S. Cable & Satellite Broadcasting

CableFAX Boot Camp March 2014

Craig Moffett craig@

(212) 519-0021

The Last Ten Years: The "Cable as Infrastructure" bull case has emerged as a broadly embraced consensus

The Three Tenets

1) The TelCos will not overbuild cable with fiber on a large scale 2) Wireless will not emerge as an economically viable substitute to

wired broadband 3) Usage-based pricing

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Tenet 1: Cable will emerge as dominant terrestrial infrastructure

Cumulative Distribution and Achievable Speeds of U.S. Broadband Service

Source: FCC, MoffettNathanson estimates and analysis

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...and that advantage only grows as the availability/demand for higher broadband speeds increases

Nielsen's Law: Maximum Download Speed Permitted

Source: Jakob Nielsen, MoffettNathanson estimates and analysis

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Tenet 2: Wireless is not an economically viable substitute

Three Arguments

1) Wireless capacity was constrained at 3G; the step up to 4G is a ~3-5x improvement in capacity... at a time when data demand is doubling every year and new gen networks come once every ten years

2) Wireless usage caps kick in at usage levels that are ~1/15th those of terrestrial... and usage fees are the cornerstone of wireless growth case

3) Math: 300K towers for 300M subscribers, @ 2.3 persons per household, with 20 MHz per tower in three 120? arcs, equals 0.15 MHz per household... versus Cable at 750 MHz and ~10x better spectral efficiency (~50,000x difference)

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Tenet 3: Usage-Based Pricing

A Brief Background

Preservation of "transport function" even if and when video shifts to Internet-based delivery... not just an ARPU boost, an insurance policy

Promised as "inevitable" as early as ten years ago Expressly endorsed in 2010 Open Internet Order at FCC

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"Video margins" have declined... but the "video transport charge" has remained roughly constant

Cable Video Gross Profit Margins (%), 2007 to Present

Cable Video Transport Margin per Subscriber ($), 2007 to Present

Source: Company reports, MoffettNathanson estimates and analysis

Source: Company reports, MoffettNathanson estimates and analysis

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The comfortable consensus... a simple growth model

Contributors of Cable Gross Profit Growth

Source: Company reports, MoffettNathanson estimates and analysis

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