Pay TV providers like Comcast and mobile phone systems like AT&T's "face an affordability crisis," writes Craig Moffett, senior analyst at Bernstein Research in New York, in a report to clients today.

He's recommending both Comcast and AT&T at today's prices. But he's worried, going forward, that phone and TV companies are becoming less necessary, let alone affordable, for more and more Americans. For example: Cable companies have boosted average rates 29% since 2006, even as "average household income has declined in real terms." As a result, "pay TV risks being priced out of the reach" of tens of millions of Americans.

The top 20% of Americans make 15X what the bottom 20% take home. That's twice the gap from back in 1970 when cable TV took off. Over 60% of American households now make less than the "average" take-home income of $62,000 a year. That means the mass consumer market that powered American expansion for 50 years is splintering, and a very large number of citizens can't afford what used to be basic, "ubiquitous" services.

Given recent declines in average income and increases in food and fuel costs, 2 in 5 Americans have "nothing left for clothing, for debt service, for cable, or for phone" after paying for food, housing, transportation and healthcare. The only way they can afford these things is to borrow money, as they did in the 1990s and 2000s; or to spend their savings, now that they're retired or out of work. 

But banks aren't lending to these "subprime" borrowers like they used to. And now Republicans and Democrats are both talking about trimming Social Security, Medicare and other income programs that account for more than one-third of the total incomes of 40% of the population. These cuts will have "a profound impact on spending," and "a quite significant impact on companies that today serve these households." It will get worse, if food and fuel costs keep rising, due to demand in China and other growing companies, and a weaker US dollar.
Sure, "higher-end" American consumers "are racing to adopt smartphones" and fancy data plans. But "lower-end customers" are trading down, to pay-as-you-go mobile phones and Internet video, Moffett shows. And "the trade-down for the bottom end is faster than the trade-up for the top." 

Cable executives like Comcast's Brian Roberts can scoff at Netflix and internet TV as "reruns". But for tens of millions of Americans, "when faced with a choice of pay TV" or full meals, more and more consumers will "choose to make do" with "good enough" video and phone service, instead of paying more money they don't have, Moffett concludes.