Comcast Sees Broadband Nirvana

For Comcast these days, there's broadband and then there's everything else.

To find evidence of this, one need look no further than the company's second-quarter earnings report released Thursday. In that period, the biggest US cableco racked up its best Q2 broadband performance in a decade, netting an impressive 260,000 new data subs, up nearly 50% from the 175,000 it added a year earlier.

With that pick-up, which blew away all analyst forecasts for the quarter, Comcast Corp. (Nasdaq: CMCSA, CMCSK) has now added 1.1 million residential broadband subscribers and another 100,000 commercial broadband subs over the past 12 months. As a result, it ended June with 26.5 million total data subs, extending its lead as the largest broadband provider in the western hemisphere.

Riding this sweeping subscriber wave, Comcast generated nearly $4.3 billion in revenue from broadband in the second quarter, up 9.3% from $3.9 billion a year ago. Over the first half of the year, broadband produced $8.4 billion for the company, up 8.8% from $7.7 billion a year ago.

In stark contrast, video services, the original and long-time core business at Comcast and other MSOs, saw another big subscriber decline in the second quarter. The company shed 140,000 cable subscribers during the spring, an increase from the 93,000 it lost in the first quarter and its fifth straight quarterly decline. As a result, the MSO's video revenues slipped 1.6% to about $5.6 billion. (See Comcast Asks Wall Street: Where Is the Love?)

While video still generates significantly more revenue for Comcast than broadband, the gap between the two services is steadily shrinking. Plus, broadband is a far more profitable service than video, boosting the MSO's margins and driving growth for many of its other services like business services, home security and home automation.

"At Cable Communications, we've talked a lot about the pivot we've made in our business towards connectivity," said Comcast Chairman & CEO Brian Roberts, speaking on the earnings call."It is increasingly the focal point of our relationship with residential customers, it's the driving force behind our growth in business services and it's where we're investing our capital expenditure dollars to continue to differentiate and extend our network leadership position."

Still seeing no ceiling to broadband's growth, Comcast, like most broadband providers, keeps hiking the data speeds that it offers to customers. On the earnings call, Comcast Cable President & CEO Dave Watson said the company has now "launched 1 gig virtually across" its entire 50-million-home footprint, mainly through the rollout of DOCSIS 3.1.

In response, customers keep opting for higher speeds, especially as they keep adding more web-enabled devices in their homes. Watson said 75% of Comcast customers now subscribe to tiers with download speeds of 100 Mbit/s or more. And Comcast broadband households now have an average of about 11 devices hooked up to the company's xFi home WiFi service.

"I think that our number one priority is growing the connectivity side of the opportunities that we have," Watson said. "So how we invest, how we manage, how we look at the product pipeline, it starts with literally everything around broadband. And given our current penetration level, we feel that there is considerable upside in growing share in broadband."

With no end in sight for broadband and pay-TV subscriptions clearly on the decline, Comcast has started following the lead of Cable One and a few other MSOs by stepping up the marketing of broadband-only plans to consumers. After fighting the trend for years, it has also been integrating more OTT video services into its video programming line-up, figuring that more streaming video use will only increase customer demand for more broadband.

"We're benefiting more from that competition than we're losing," Roberts said. "Why is that? Because video over the Internet is more reliable, offers more devices and more bits per consumer and more bits per home. All those are great trends for us. We'd like it all to be our bits. But if it's not, that's why we've integrated Netflix, YouTube and all future integrations."

— Alan Breznick, Cable/Video Practice Leader, Light Reading