Intellectual Property Law

Comcast Penetration Dips Below 50% Threshold

By Cynthia Brumfield

Top cable operator Comcast issued its Q4 07 earnings report this morning showing solid growth in revenues and operating cash flow but continued continued cooling in most new service categories and ongoing losses in basic cable subscribers. Indeed, for the first time in perhaps 25 years Comcast's basic penetration dipped below the 50% threshold.

Cable revenues for Comcast advanced 9.4% year-over-year to $7.6 billion while operating cash flow jumped 13.1% to $3.1 billion. Net income for the overall company (including cable networks), not the usual metric by which cable companies are judged by Wall Street, soared 54.4% to $602 million.

But net income as a measure of profitability will get more attention at Comcast because for the first time, the company will pay dividends to shareholders. Comcast also announced today that is paying a dividend of $0.0625 per common share, the first part of annual dividend of $.25 per share. The move to pay dividends reflects investor complaints that in the face of Comcast's perpetually dampened stock prices, they are not receiving much of a payback on their funds.

During the quarter, Comcast lost 94,000 core video customers, wrapping up the year with 24.1 million basic subscribers, a pentration rate of 49.6% of the total 48.5 million homes passed. Competition from DBS providers, particularly DirecTV, which yesterday reported blow-out customer gains in Q4, and phone companies, particularly Verizon, continue to eat away at Comcast's market share.

During Comcast's earnings call, executives acknowledged the competitive pressures but said that growth in the high-speed data and telephony businesses, as well as new revenue generating activities such as interactive advertising, will continue to fuel the company's good financial performance. High-speed data subscriptions continue to grow during the quarter, albeit at a lower rate than in the past.

During Q4 07, Comcast added 331,000 net new high-speed customers, a run-rate that is down by a third year over year, and ended the year with 13.2 million high-speed subscribers representing around 28% of capable homes. Verizon, with its fiber-based, faster high-speed FiOS service, is one of the biggest threats to Comcast's future growth in the broadband business.

But, Comcast hopes that its impending upgrade to DOCSIS 3.0 technology, which promises to substantial boost the company's ability to match Verizon's speeds, will keep customers away from the telco rival. During the call, Comcast President Steve Burke said that 20% of Comcast's footprint will be upgraded to DOCSIS 3.0 by year-end 2008.

Comcast's digital TV customer count also made gains during the quarter, but again at a decelerating growth rate. During the quarter, Comcast added 523,000 net new digital customers, ending the year with 15.2 million digital households reflecting 63% of basic customers. Many of these digital customers are homes that have a digital box but that do not necessarily buy advanced digital services such as HD or PVR packages.

Comcast's goal, however, is to convert its entire customer base from analog to digital as it prepares to go all-digital throughout its service territories. During the call, Burke said that the process of converting to all-digital will be stepped-up over the coming months.

The almost unambiguous bright spot for Comcast is digital voice service, which posted 604,000 net additions during the quarter, a run rate 18% higher than the net digital voice gains during the year-ago quarter, but down slightly from the net growth posted during Q3 07. Including legacy analog voice customers, Comcast had a telephony customer base of 4.553 million by the end of 2007, representing 9.75% of capable homes.

Full post as published by IP Democracy on February 14, 2008 (boomark / email).