Growth slowing, missed many operational expectations. Revenue growth solid, and customers are spending more money monthly.
Competition from satellite and telco is getting more intense. Cable pioneered the “triple play” — bundling TV service with high-speed Internet and digital phone service — and management says 14% of Comcast’s video subs subscribe to all three services. But satellite and telco competitors have caught on. Of special concern: many observers think satellite is beating cable at marketing hi-def offerings, which will only become more important as more people buy HDTVs this Q4. Another key factor going forward: retaining triple-play subscribers after their cheap, introductory rates go away — usually 1 year after signing on.
Phone service is still Comcast’s fastest growth engine. The good news: Comcast added 662,000 (net) Internet phone subscribers during Q3. With 3.8 million subs, Comcast has walloped Vonage as the U.S. VoIP leader. The bad news: growth even stalled for Comcast’s hottest product. Despite a 36% y/y growth in phone sub net adds, Q3 net adds fell 1.6% from Q2. (Meanwhile, the number of homes eligible for phone service grew faster at 6.6% q/q.)
Management thinks there is still growth left in cable Internet. Comcast added 450,000 high-speed data subscribers during the quarter, and now sells Internet access to 27% of “available homes.” But management thinks it can get that number up to 40% as overall U.S. broadband penetration increases. How can Comcast make that happen faster? One plan: marketing cheaper cable Internet service in some areas to win more people away from slow-but-cheap dialup. Only 25% of Q3 net adds came from dialup, while 61% came from DSL (telco) and 14% came from other cable companies.
What’s up with wireless? Comcast offered no direction for its wireless plans. The company has a joint venture with other cable companies and Sprint Nextel — “Pivot” — to offer quadruple play packages. Yet we never hear about it. Telcos like T-Mobile and AT&T are experimenting with “fixed/mobile” services, where a single phone can make both wi-fi (cheap) calls and cellular (less cheap) calls. Too early to tell how successful these offers will be, but they make sense in theory. Where is cable’s response?
Live conference call notes after the jump.
- Revenue: $7.8 billion (up 21% y/y)
- Operating Income: $1.39 billion (up 14% y/y)
- Net Income: $560 million (down 72% y/y)
- EPS: 18 cents (diluted)
- Video Subs: 65k net loss (24.2mm subs)
- Internet Subs: 450k net adds (12.9mm subs)
- Digital Phone Subs: 662k net adds (3.8mm subs)
- ARPU: $102.24 (up 11% y/y)
- 8:56 We join the call, already in progress.
- 8:56 Competition has intensified. Telcos, satellite have figured out bundles. Triple play remains centre of our strategy. Those customers tend to churn less frequently.
- 8:58 Gained 10x as many phone customers as
- 8:59 Added 325,000 digital customers w/ advanced boxes (HD, DVR, or both)
- 8:59 Overall high-speed data market slowing, but think there is plenty of growth ever. Right now 27% penetration — think they could hit 40% at some point. Only 25% of net adds came from dial-up. Carefully launching cheaper high-speed Internet to get more of those customers.
- 9:00 3.8 million Internet phone subs. 11 million reasonable in a few years.
- 9:02 Commercial kicking into gear: $100 mm quarterly revenue for first time.
- 9:03 Q&A.
- 9:05 Non-answer about how they will improve their marketing
- 9:07 Wireless? Would be wonderful if we had perfect clarity. No new news today. Studying it.
- 9:10 Competition from telcos? AT&T and Qwest did well vs. Comcast. Verizon slightly more competitive but not all that much. ATT more competitive vs. CMCSA than VZ with high-speed internet, despite FiOS.
- 9:12 Cable capex to come down in Q4. Have not disclosed net adds or specifics for business customers.
- 9:13 Can CMCSA keep up with satellite re: HDTV? Expecting HD sales 30%-50% higher than last year. Anticipating HD conversion to accelerate. More people get HDTV from both DTV and DISH combined. Satellite “may have more channels” but not as many “options.” So what? Get more channels! (Tech trials now for switched digital, which will get more bandwidth for HD.)
- 9:15 Trash-talking satellite!
- 9:17 Next year, phone will be stronger than this year (net adds). Service issues on occasion, don’t think it’s a factor. Network stability fine, but still learning what to do with customers coming out of 12-month packages.
- 9:19 Will have to bring pricing down to compete with AT&T bundles? Competitors certainly doing things in pricing “that we wouldn’t do.” (Giving TV service away for a year.) “Questionable” pricing. Video ARPU nicked by triple play accounting, which maintains Internet and phone ARPU but cuts TV’s.
- 9:22 Verizon triple play overlap around 4%-5%. That number should grow. AT&T harder to tell.
- 9:23 How did cable get behind in HD, at least from a marketing point? Phone better at marketing triple play and double play. We added a lot of HD VOD capacity, HD channels. Don’t think intensified competition had anything at all to do with HD, but a competitive response to triple play.
- 9:25 Not going to address Big 10 Network, but generally speaking, there is tension. Different decisions you make, either financially driven or other motives. We don’t think every channel should get an analogue basic and charge every consumer for that channels. “Hundreds of millions” wanted by some channels… not long-term trend of having to raise peoples’ rates for every channel someone wants to create. 80%-90% won’t watch that channel anyway!
- 9:27 Price increases coming from programmers, so have to increase service prices to make up for it. About 10% of customers in buildings with exclusive Comcast agreements. Comcast execs “not sure” why government (FCC) should prevent landlords from having exclusive agreements with cable providers. Uhh… how about because it’s terrible for consumers?
- 9:30 Call ends. More analysis to follow.
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