OREANDA-NEWS. Slowing revenue growth for western European cable operators is likely to lead to greater value focus, Fitch Ratings says. We expect cable operators to focus more on maintaining market value, optimising cost structures and sustaining competitive positions than on pursuing market share growth.

The impact on cable operators will vary by market as differing characteristics lead to differing operating risks. Cable operators in markets such as Belgium (Telenet, 'BB-'/Stable) and the UK (Virgin Media, 'BB-'/Stable) will have relatively stronger operating profiles, reflecting well-entrenched market shares in broadband and TV, low competition from alternative broadband suppliers (in Belgium), limited fibre-to-the home deployment and the evolution of improved market structure as a result of consolidation in the mobile segment.

Slowing growth will strengthen the rationale for mobile M&A and could lead to improved competitive dynamics in some markets by establishing stronger, network-based duopolies (incumbent and cable operator) that compete less on price and focus more on churn reduction. This would support the credit profile of cable operators. But there may be few opportunities for further consolidation due to regulatory and other obstacles.

Slower growth in the cable sector also supports the ratings of western European incumbent operators, although investment in fibre local access networks will continue to subdue incumbent free cash flow generation over the next two to three years.

We expect revenue growth for the cable sector to continue slowing over the next two to three years, having already fallen to 0%-4% annually from 5%-10% five years ago. Cable penetration levels are high and opportunities to significantly increase broadband market share profitably are reducing. Ongoing declines in analogue video revenue due to competitive churn or the substitution to digital products, increasing use of over-the-top (OTT) applications such as Netflix, and new cable regulation in certain markets will also restrain growth.

Changes in the way audiences view TV are likely to affect cable and satellite pay-TV operators. Growth of internet-based content providers or OTT applications that can be viewed anytime and anywhere is a growing risk to cable operator pay-TV revenues. The greatest impact in western Europe is likely to be from pay-TV subscribers trading down to lower-value bundles and potential pricing pressure for premium-rate bundles. The ownership of cable infrastructure provides some hedge against the trend as OTT services are predicated on high-speed connections.