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A 2,150% Power Boost That Could Ease the Cable Crunch

It’s no secret that when it comes to the pay TV business, cable companies are bleeding subscribers right now.

As we’ve mentioned before, services like Netflix (Nasdaq: NFLX) and Hulu are inspiring more people to cut the cord every day.

In 2010 alone, 700,000 people ditched Comcast (Nasdaq: CMCSA) while nine million people joined Netflix. In fact, with 22.8 million subscribers, Netflix now has more customers in the United States than any pay TV provider. (Comcast is a close second with 22.76 million.)

To top it off, JP Morgan (NYSE: JPM) reports that 47% of Netflix customers could ditch paid television altogether.

So what do cable companies do when almost half of their pay TV customers are abandoning ship? Desperately latch onto their one glimmer of hope: broadband internet.

The Bandwidth Hog

You see, no matter how many TV subscribers Netflix pilfers from Comcast, you can’t stream video without an internet connection.

So although pay TV subscriptions are plummeting, thanks largely to Netflix, the cable internet business is booming.

As Comcast CEO, Brian Roberts, says, “Netflix needs one of the strongest broadband connections you can get… we’re seeing a surge in our broadband usage. We sold more broadband last year than we did the year before.”

It’s not hard to see why, considering that Netflix is now the biggest source of downstream internet traffic in North America.

Problem is, Netflix’s bandwidth hogging is putting a huge strain on broadband networks. And internet traffic jams translate into shoddy streaming video for consumers, which doesn’t bode well for cable companies and Netflix alike.

So how do cable companies keep customers happy while still reaping the financial benefits from data hungry Netflix users?

One word: speed.

A 2,150% Power Surge

At the recent NCTA Cable Show in Chicago, cable equipment provider, Arris Group (Nasdaq: ARRS), showcased a simple way for companies like Comcast to boost broadband speeds.

Basically, the company has developed a proof of concept (i.e. early prototype phase) upgrade to its cable modem termination system (CMTS) – which connects the internet to your modem at home.

Without getting too technical, this upgrade devotes more channels to broadband internet through the cable module. As a result, the system can support download speeds of 4.5Gbps (gigabits per second).

To put that in perspective, according to GigaOM, “Today’s cable networking technology… delivers up to 200 Mbps (megabits per second).”

So we’re talking about Arris’ technology boosting download speeds by a ridiculous 2,150%.

Better yet, once it’s ready to go mainstream, the technology can simply be installed in existing cable modules.

So Comcast and other cable companies can amp up speed without the cost of a massive network overhaul. At the same time, streaming video would look better than ever, keeping Netflix customers tuned in.

The upgrade comes with one caveat, however…

You Might Have to Live With Only 27 Sports Channels

The new broadband channels need to come from somewhere. That means fewer channels for pay TV subscribers.

Our response? Big deal.

Engadget says it best, “Yes, that means you’ll receive 848 channels instead of 1,000, but who’s complaining? By the time this proof of concept technology makes it to your cable router, most of us will be watching all our TV on Hulu, Netflix, or some other IPTV provider anyway.”

And with the amount of useless stations on cable nowadays, I’d say that sacrificing a few sports channels for a 2,150% speed boost is a pretty solid trade-off.

Good investing,

Justin Fritz

Justin Fritz

, Executive Editor

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