Comcast CFO Michael Angelakis has a problem FCC Chairman Kevin Martin, who’s been busy investigating the company’s policy of disrupting some of its subscribers’ Internet transfers.
Angelekis wouldn’t come out and say Martin’s name, but it was clear who he was talking about during a fireside chat at Bear Stearns’ annual media conference: “We have a very good relationship with the commission,” Angelakis said. “It’s one member of the commission that we have issues with. It’s really too bad.”
Angelakis stood by his company’s policy of disrupting its customers’ peer-to-peer transfers — and not telling them about it — saying it falls under “reasonable network management.”
Otherwise, no news today: As usual, Comcast (CMCSA) is looking at ways to open up more bandwidth on its cable network for more HD channels, says it can hold its own in head-to-head competition with Verizon, and says it hasn’t figured out how it will add wireless to its product lineup. Nothing juicy about the economic slowdown, other than again admitting that it’s pinching Comcast’s growth.
11:51 Competitive environment has changed a lot in the last year. In some markets, five companies: Two satellite, cable, overbuilder, telco. Thinks they’ve been holding their own vs. Verizon (VZ) so far. Obvious that VZ will gain share. The way they’re monitoring it: Know there’s going to be a bit of a share shift. Still picking up customers from phone companies on phone, Internet services.
11:53 DirecTV (DTV) has done a good job posturing that they have a better HD offering than we do. We’ve adjusted our marketing to address the reality-vs-perception. We think bundling is still very important.
11:54 There’s a couple ways we look at HD. First, choices: Channels and on-demand. Doing a number of things to make more channels — cutting analogue channels, etc. Also want to put more HD stuff on the on-demand service. Will put more content on both aspects of the platform. Will also try to reclaim more bandwidth.
11:55 Broadband penetration around 75% of households with PCs. How will you grow? Broadband utilization still changing. We’re in the high 20% range of penetration. We think trajectory will level off, but we’re continuing to grow that business. People are demanding more bandwidth, so we have a premium service that we charge more for. In one market, literally a 10% penetration on higher tier service.
11:57 Also have a slower service for $25 — for retention and to convert dialup subs. Not getting a lot of traction — that’s good news, I guess.
11:59 Cable used to be more insulated in downturn. Has anything changed in business in the last 10 years that’s made cable more sensitive to downturns? Price! More than $100 per month per customer. We were one of the first companies to come out and say that we saw softness. We think advertising is a “pretty interesting indicator.” Also housing growth. I think our company won’t do as well as we might as hoped, but I think will ride out downturn fine.
12:02 Talking down the prospects of a price war. Comcast already a price leader. Can’t rule out irrational behaviour, but in good position to absorb it. Indicators point to prices going up.
12:03 Our plant is great! VZ has a good one too, but limited in coverage market. We think a couple ways to manage bandwidth: Using wide band DOCSIS 3.0 on data side. Not a very expensive effort to get bandwidth up to 160 megabits. Later this year in some markets. Already budgeted in capex plan for 2008. Other plan is around HD and additional channels. Two features: In some markets with high digital penetration, going all digital. Did that in Chicago last year. Not every single channel digital, but shrinking analogue.
12:05 Many markets more than 65% digital penetration. Some people disrupted — maybe 10% of subscriber base use analogue.
12:06 Using switched digital in some markets, too. Capex? Where are we on capital cycle? What parts of capex are going up? Residential capex actually going down despite higher average cost of set top box. We spend between 65% and 70% of our dollars on growth capital. Some CPE, and capitalised labour. Commercial capex has gone up. Capex targeting 18% of revenue, down from 20%. How low could it possibly get? Don’t want to give any numbers. Cablevision (CVC) has lower numbers. Seeing some discretionary capital this year. Project Canoe, where we’ll be spending $50-$70 million.
12:11 Wireless the ‘big unknown’ for cable industry. Where do you go? Doesn’t leverage cable network. Like the efficiencies of delivering everything over one network. Not just thinking about quad play voice. What can take our existing products — voice, video, and date — and make that portable? Need to figure out how to add another feature to our existing products and add mobility to them. We’re taking a very cautious and careful approach to: What is the right product, what is the right technology, and what’s the right business plan?
12:13 Dividend, buyback, M&A. When you look at our free cash flow, forecasting 20% growth this year. Will borrow a little money this year to do dividend and buyback.
12:15 Question from audience: FCC relationship ‘sub-optimal’. Anything you’ve learned? Comment on net neutrality? To be fair, good relationship with commission — one member of the commission we have issues with. It’s really too bad. Came into Comcast relatively new, never had this type of relationship that’s been as difficult as it’s been. We have good responses to issues, and they aren’t going to impact the core business. In 2005 FCC said reasonable network management is fine. You can talk to most carriers and they utilise reasonable network management. App providers say network health is paramount.
12:17 How many HD channels will you be able to offer? Why haven’t you been more aggressive with HD? We think our HD service is great. In the marketing world, DVT done a better deal. 6.3 million HD customers, selling HD boxes on a pretty regular basis. Bandwidth management: If we have 80 analogue channels, have claimed 50 = 300 MHz –> 150 to 200 HD channels using that alone. We think there’s many HD channels that don’t deserve to be on. Also putting a lot of HD on on-demand system.
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