Cable One has always been the quiet kid in the back of the class, steadily building a robust broadband business while the big cable guys brawled over urban markets. Their "safe harbor" strategy – targeting smaller, less competitive areas – has delivered consistent free cash flow and impressive margins. Now, facing a new breed of competitors in the form of fixed wireless and ambitious fiber overbuilders, Cable One is making a bold, almost counterintuitive move: they're embracing the "value-conscious" consumer.

On the surface, this seems like a risky play. After all, Cable One built its reputation on attracting high-lifetime-value customers, boasting higher ARPUs (average revenue per user) than most of its cable peers. Why dilute that premium image by chasing bargain hunters? A closer look at their Q1 2024 earnings transcript, however, reveals a shrewd strategy unfolding, one that could position them to become a dominant player in the rural fiber landscape.

The key lies in understanding Cable One's network advantage. They've poured over a billion dollars into infrastructure over the past three years, resulting in a network with an astounding 80% unused capacity. This excess capacity is their secret weapon. It allows them to offer aggressively low prices to attract new subscribers, particularly those tempted by the allure of cheap fixed wireless. While fixed wireless providers grapple with capacity constraints and potential throttling, Cable One’s network can handle even the most data-hungry customers with ease.

But this isn't just a price war. Cable One is deploying a multi-pronged approach. They're leveraging their wall-to-wall WiFi solution to gain real-time insights into customer experience, proactively identifying and addressing potential issues. They're also investing in cutting-edge software platforms to enhance automation and streamline service delivery, further reducing operating costs.

The results speak for themselves. Cable One is bucking the industry trend, reporting eight consecutive months of customer growth. Connects are surging, reaching levels not seen since 2020, and churn rates are plummeting, especially in highly competitive markets. They're even winning over customers from established fiber competitors, demonstrating that their strategy is not just about price, but about delivering a superior, reliable experience.

This focus on subscriber growth, coupled with disciplined capital expenditure, is setting the stage for sustained free cash flow growth. While ARPU may dip in the near-term, the sheer volume of new subscribers, combined with their network efficiency and cost optimization initiatives, ensures long-term profitability.

Here's where the fiber domination hypothesis comes in. Cable One is using this period of low move activity and heightened competition to aggressively expand its customer base. As they attract new subscribers, their penetration rates, currently at around 35%, will inch closer to those of their larger peers, who are hovering in the high 40s and low 50s.

Cable One's Growth Strategy: Subscriber and Revenue Projections

Let's explore some potential scenarios based on Cable One's growth strategy, assuming a hypothetical target penetration rate of 45%.

As you can see, even with a lower ARPU, the increase in subscribers could lead to significant revenue growth. However, it's crucial to remember that this is a simplified projection. Actual results will depend on factors like competitive intensity, customer adoption of higher-tier plans, and Cable One's ability to maintain operating efficiency.

Cable One's Network Capacity: The Foundation for Growth

The chart below illustrates Cable One's current network utilization. Notice the substantial unused capacity, which is crucial for their strategy of accommodating new subscribers and higher data usage.

And remember, this is just from organic growth within their existing footprint. Cable One is also actively pursuing strategic acquisitions and investments in other rural broadband providers, further expanding their reach and market share. Their investment portfolio, which includes companies like Mega Broadband Investments (MBI), is generating strong customer and financial growth, with a collective annualized Q4 2023 adjusted EBITDA of $613 million.

Cable One’s potential acquisition of the remaining 55% stake in MBI is particularly intriguing. MBI operates in a less competitive rural market, boasting a loyal customer base of approximately 230,000 and a double-digit EBITDA growth rate. Furthermore, Cable One has stated that they are confident in their ability to complete the transaction without accessing the capital markets for additional funds, demonstrating their financial strength and strategic foresight.

This all points to a future where Cable One, through a combination of organic growth, strategic acquisitions, and a highly efficient network, becomes a dominant force in the rural fiber landscape. Their "value-conscious" gamble may be a temporary dip in ARPU, but it's a calculated move that sets them up for long-term success and could ultimately lead to fiber domination in their chosen markets.

"Fun Fact: Cable One's origins date back to 1980, initially serving just 1,700 customers in a single town in Idaho. Talk about humble beginnings!"