'Poverty problem' hampers phone, cable growth
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U.S. telecommunication and cable companies have a "poverty problem," according to Craig Moffett, an analyst at Sanford C. Bernstein & Co.
Many lower-income consumers are shunning smartphones, broadband Internet access and pay-television services because they can't afford them, Mr. Moffett wrote in a May 25 report. Instead, they are turning to cheaper alternatives.
During the first quarter, a record 64.5 percent of the wireless industry's new customers opted for pre-paid service, rather than more expensive monthly contracts, according to the data Mr. Moffett compiled.
The percentage almost doubled from its low in 2006.
"The bottom end of the market is trading down as quickly as the top end is trading up," Mr. Moffett wrote.
Cable and satellite TV companies are in a similar position, the report said, as their price increases make Netflix Inc.'s video-streaming service and other "good enough" options more appealing.
These developments will hamper the ability of phone and pay-TV companies to add customers and to raise prices further, Mr. Moffett wrote.
He added, "Investors in both sectors will face a stiff headwind if either trend worsens."
First Published June 9, 2011 12:00 am