Comcast remains confident in broadband despite a competitive market

During the Citi Global TMT Conference on September 5, Comcast CFO Jason Armstong said that the company is focused on and investing capital in six key growth drivers, which include broadband, business services, and wireless.

He reported that, although revenue growth in the past few quarters has been lower than historical standards, Comcast doesn’t believe this is the new normal.

“We believe we can reaccelerate revenue growth,” he said, “but that is rooted in a view of: you have to go look under the hood and unpack it and say, ‘we’ve got 60% of our business that’s in six growth drivers where we’ve got definitive advantages, clear right to play, and they’re all growing end markets.’”

Armstong said that, over the last several quarters, the revenues of these six growth engines have been growing by mid- to high-single digits. While the six growth drivers now make up 60% of Comcast’s total revenue base (and have higher margins than the other 40% of the company’s business segments), the company expects this ratio to shift to 70:30 in a few years and then to 80:20 in the years after that.

Strength in broadband

Armstong acknowledged that the current broadband market is more competitive than it has ever been before, but Comcast plans to continue investing in the segment.

“Not only is it fiber overbuilding,” he said, “but it’s three new fixed wireless competitors in a certain segment of the market. Despite that, last quarter we grew revenue by 3%. So, not being able to grow volume, but being able to grow ARPU 3% to 4% in my mind, gives you even more conviction in investing in this business.”

While the environment is competitive, Armstong reported it is stable, not getting incrementally more competitive.

“If you think about what informs a long-term view on broadband, I think we’re very bullish on the outlook. We wouldn’t be accelerating our homes passed unless that was the case. So, what informs that view? If you think about the competitive aspects of what we’re seeing today and how we’re responding, there’s the more temporary competition—and that’s not to say it’s going away, but it’s sort of in a finite niche and that’s fixed wireless: because it’s an excess capacity model, there’s a certain amount you can sell into, and then you have to make decisions. Investing in capacity has a marginal cost to it; can fixed wireless really support that type of model? We don’t think so. I think the wireless companies would probably say the same thing. But nonetheless, there’s excess capacity to sell into right now.”

Armstong said Comcast’s marginal cost to deploy for excess capacity is one of the lowest in the industry, especially relative to fixed wireless. The company also believes broadband networks will see more and more consumption.

“The amount of tonnage we’re seeing across our network on a per-subscriber basis is growing double digits,” he said, “and that’s a very healthy trend in our business; that’s actually what we want to have happen.”

Comcast sees fiber as its long-term competitor. To compete here, Armstong said the key is surrounding the product with good control features and aggregation experiences. He said there are also benefits in bundling wireless with broadband. Comcast has a focus on penetrating the broadband customer base with wireless, which now stands at 12% penetrated.

“We’re happy to see you come in and be a wireless customer,” he said. “That is an economically advantageous, financially accretive transaction for us to go add a wireless customer, and it protects broadband. It’s got its own separate economics that stand on their own, but really, we think about the two together.”

Regarding business services, Armstrong reported that serving small businesses well has allowed Comcast to grow its book of businesses in the segment to $10 billion. The next steps, he said, are going after enterprise and mid-size business.

“We’ve been starting to crack the code there,” he said, “but as we look at the totality of the addressable market, we think it’s about $60 billion in our footprint. So, we continue to crack the code on sort of moving up market, whether that’s sales force or capabilities.”

Retaining customers and growing ARPU

Comcast believes that getting customers to do more on their network is pivotal to ARPU growth.

“We see our customers increasing usage and engagement on our network double digits year over year,” he said. “And so if you really think about it, the price per gig is going down pretty significantly for the customer. That’s an okay thing. We’re still raising prices and taking ARPU, but the customer ultimately is getting a lot more value every single year which informs a view of the ability to continue to grow ARPU.”

Armstrong also reported that Comcast is disappointed that the Affordable Connectivity Program (ACP) is going away, saying that the end of the program is bad for the consumer. He pointed out, though, that a majority of Comcast’s ACP customers were Comcast customers before the start of the program and only received discounts after the program went into action. He also pointed out that all of Comcast’s customers are postpaid customers, which he said alleviated issues faced by companies with large prepaid bases. Overall, the company remains confident in its ability to retain customers.

“We are constantly dealing with promotional roll-offs,” he said. “This happens every single quarter, quarter, in quarter out. This is just another version of promotional roll-offs.”

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