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Summary:

Comcast, thanks to some stiff competition from lower-priced DSL offerings and Verizon FiOS combined with economic woes and fears of a recession, is beginning to see some slowdown in its broadband growth. Broadband has traditionally been a growth engine — and a big moneymaker — for […]

Comcast, thanks to some stiff competition from lower-priced DSL offerings and Verizon FiOS combined with economic woes and fears of a recession, is beginning to see some slowdown in its broadband growth. Broadband has traditionally been a growth engine — and a big moneymaker — for Comcast, so this is a disturbing sign. Of course, the stock market is pretty pleased with Comcast today — dividends, stock buybacks and the perceived pragmatism of management (exemplified, in Comcast’s case, by not buying Sprint or Yahoo, as if they really can) usually provide a short-term boost to shares before reality kicks in.

The company reported its fourth-quarter 2007 results today, saying it added about 331,000 broadband subscribers in the three months ending Dec. 31, 2007. That’s down sharply — 26 percent — from the 450,000 subscribers it added in the third quarter. Comcast had 13.22 million broadband subscribers at the end of 2007.

comcastvoice.jpgIt seems Comcast’s Digital Voice business is also running out of breath. After adding 662,000 new subscribers in the third quarter, Comcast’s total CDV net new additions dropped to 604,000 in the fourth quarter.

Numbers like this means Comcast, like other cable operators, will have to work harder and offer better-priced plans in order to keep making gains against the phone companies. At this point it’s safe to say that 2008 is going to be a tough year for the largest cable company in the U.S.

  1. great post Om.

    That’s why Comcast and TWC need to stop the sillyness about throttling/metering bandwidth.

    Their growth is declining. competition is real. Instead of friction, they should be thankful that we are using their pipes. and they should figure out how to get more apps on their network, not less.

    Give us what we want or we will switch.

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  2. Here’s another reason why Comcast’s broadband business might be “slow.” Each year for the last 3 years I’ve signed up for the service, brought it home, installed it, and found it almost unusable. When there’s a signal, it’s blazingly fast, but then it just cuts out at random times and for random periods of time (an hour, 12 hours, etc.). Each time I disconnected the service I told them why, but noone cared, and obviously noone remedied the problem — and this is a densely populated suburban town in New Jersey. I’m particularly angry about this because I’m forced to use Verizon DSL, which sucks but is at least reliable (FiOS isn’t available here yet). Also, Comcast’s phone service is not VOIP (which one would expect as part of a package with their broadband Internet service) but some sort of absurd landline POTS service.

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  3. Interesting post. A lot of people are concerned with the cable operators slowdown in the broadband arena and that is why they are combating it with their Docsis 3.0 technology, which is expected to be launched later this year in 20% of their markets. The technology is expected to be relatively cheap to install and “dramatically boost” connection speeds. The journal summarized it all pretty well earlier this morning in an article titled ‘Cable Prepares an Answer to FiOS.’ Don’t get me wrong, I despise cable companies and their enormous bills just like the majority of the public, but I wouldn’t count them out just yet.

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  4. I’m sure Comcast would love to buy Yahoo, but their debt is standing in the way of this ever working out. Huge debt is a fact of life for those bound by physical plants. Carrying such debt, and the negative cash flow associated with servicing it brings a level of scrutiny to the cash flow aspect of financials that software/service companies don’t have to contend with. Couple that with the large negative cash flow required to maintain the physical plant and you’ve got a double whammy. The reason AT&T’s acquisition of a bunch of cable companies fell apart, in the Armstrong days, was due to the horrific debt that was showing on the balance sheet (well over $50B at one point) combined with all the money it was costing to build out AT&T Wireless. This is the same reason Sprint spun off their landlines as Embarq. The debt incurred and cost of building out the wireless plant is bad enough, coupling it with the debt on the wireline side was too much to allow operational flexibility for a public company. If Comcast bought Yahoo, it would add relatively little to their revenue, while at the same time generating another expense that would compete for funds with building out Docsis 3, customer support, and even routine network maintenance. Meanwhile, they would still have all this debt on their books, unlike Microsoft and Google, who would now be their highest profile competitors.

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  5. The reason I quit Comcast is that their technical support was staffed by stupid people who didn’t know their ass from a hole in the wall. When I call tech support, I don’t need to hear ebonics or bad English with and Indian accent. It gives me no sense of confidence when the agent says, “What do the modem light be doin?”

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  6. To the note about Debt and Cash Flows:

    • Cash Flow matters to every company and software cos have to contend with this too. This is the reason why Yahoo is in trouble with Wall Street. That is the basis of all valuation. I assume you are looking at the bigger picture of Cash Flow when you use the term ‘negative cash flow’ for debt.

    • Debt is a sound capital markets instrument. Debt involves interest payments that reduce taxable income. Seondly, ability to take on debt also reflects unbiased opinion and ongoing scrutiny from lenders (who don’t necessarily have money to lose) as to the likelihood of success of the investment.

    • Yahoo at 6 billion in revenues would increase Comcast’s (25 billion) revenues by 25%. Not bad at all mathematically speaking.

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