Digital television to reach 64% of US households by 2008

Fitch believes that the cable multiple service operators (MSOs) will add over 11.5 mln new revenue generating units (RGUs) in 2007, which represents a growth of approximately 12% compared to the prior year. However, Fitch forecasts that new RGU additions in 2008 will fall below 11 mln. Fitch anticipates that the growth in telephony subscribers, which should grow from approximately 40% of total new RGUs in 2007 to 45% in 2008, will not offset slowing growth from cable modem and digital television services or basic subscriber losses. Fitch also believes that the cable industry will lose nearly 1.5% of its basic subscribers to increased local exchange carrier and satellite competition. The impact of competition on basic subscribers will be more pronounced in 2008, in part due to continued weak new home growth and more effective product offerings from competitors. While digital television subscribers are expected to grow in 2008 due to higher penetration rates of high definition (HD) television and digital video recorders (DVRs), the pace will slow compared to 2007. Fitch expects digital television to reach a penetration rate of approximately 60% by year-end 2007 representing an annual increase of approximately 600 basis points compared to 2006.

Fitch anticipates that digital television penetration will increase to approximately 64% in 2008. Fitch believes that cable modem service growth will continue in the near-term, but capturing incremental penetration amounts will be increasingly difficult and will require refining product positioning and pricing going forward into the future. Cable MSOs have begun to tailor new low price, low speed cable modem tiers to target specific market segments. Fitch notes that this strategy has the potential to negatively impact cable modem average revenue per user (ARPU) and margin. Fitch believes that the total of new cable modem subscribers will fall modestly in 2008 compared to 2007.