Investing.com -- S&P Global Ratings has downgraded all ratings for U.S. cable operator Cable One Inc (NYSE: CABO ). by one notch, including lowering the issuer credit rating to ’BB-’ from ’BB’. This decision was driven by the company’s weak operating performance and a negative outlook.

Cable One is facing increased competition from fiber-to-the home (FTTH) and fixed wireless access (FWA) providers. This competition is negatively impacting its earnings and causing its leverage to remain elevated, triggering the downgrade.

The company’s leverage is expected to stay high at around 4x through 2026, despite the suspension of its dividend. This is due to a year-over-year decrease of 8.5% in its EBITDA in the first quarter of 2025, which resulted in its last-quarter annualized debt to EBITDA remaining at 4.3x.

Cable One’s residential broadband earnings have been negatively affected by the increased competition from fixed wireless and fiber-based services. This is further compounded by the company’s high average revenue per unit (ARPU) and a lack of mobile services to bundle with its broadband offering.

The company has shifted its strategy from emphasizing profitability over market share. However, it could be challenging for Cable One to stabilize its ARPU, which declined by about 3% year over year in the first quarter of 2025. During the same quarter, the company lost about 10,000 residential high-speed data subscribers.

In 2025, Cable One’s earnings are expected to decline by about 5%, revised down from an earlier forecast of 1% growth. This is due to weak residential revenue driven by 2%-3% declines in broadband and 14%-16% declines in video and voice. In 2026, the company’s organic earnings are expected to decrease further due to a 2%-3% drop in its broadband revenue.

Cable One’s residential broadband ARPU has declined to $78.84, down from a high of $85.69 in 2023, but it remains high compared to its peers. This could limit the expansion of its residential broadband revenue in the near term.

The company has responded to competition by introducing new low-priced options, such as Flex (NASDAQ: FLEX ) Connect for $45 per month for 300 Mbps. However, this could offset the ARPU gains from the company’s ancillary services, such as SecurePlus, and lead to further declines in its ARPU and broadband revenue.

Cable One’s limited product diversity leaves it more susceptible to competitive pressures. The company does not offer mobile wireless, which hinders its ability to differentiate itself from its FTTH and FWA competitors.

Cable One is expected to reduce its leverage in 2025, with the generation of free operating cash flow (FOCF) of about $250 million this year. This, along with the monetization of select investments and suspension of its dividend, could bring its leverage down to about 4x this year. However, the company is committed to acquiring the remaining 55% equity stake in Vyve from GTCR, which could cause its leverage to remain in the low- to mid-4x range through 2026.

The negative outlook on Cable One reflects the potential for further tightening of thresholds if its earnings trajectory remains significantly negative. The rating on Cable One could be lowered if its EBITDA continues to contract or if it completes a debt-financed acquisition that pushes its leverage above 4.5x on a sustained basis. The outlook could be revised to stable if it stabilizes its ARPU and broadband subscriber trends and maintains leverage of below 4.5x on a sustained basis.

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