Comcast Expands Prepaid Internet Test

Service Available to Eligible Homes in Most of MSO’s Markets
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Comcast is inching toward the national rollout of a prepaid Internet service that will enable it to tap into new revenue and offer a model that can be replicated by other cable operators.

The MSO originally tested the service in the Philadelphia area for potential customers who could not get bank accounts or would not qualify for traditional billing. A website dedicated to the prepaid offering indicates that Comcast has extended the trial to eligible households in most of its service areas, including Denver, Chicago, Seattle, Detroit, Baltimore, Boston, Atlanta and Houston.

The cable firm has not announced a launch date, but the expanded trial is an indicator that it is shoring up its back-office and billing systems to accommodate a national deployment. Comcast continues “to test this particular channel to study our operational readiness, communications and customer education to learn more,” a company spokesman said.

Comcast began to its prepaid Internet product last year in parts of Philadelphia, Delaware and New Jersey. It initially marketed the service through dozens of local wireless phone stores, as well as via the website, but recently shifted order fulfillment to a call-in number (855-75-PREPAID), presumably to accelerate its ability to support the product nationally.

The prepaid product has remained relatively unchanged since Comcast began testing it. The Starter Kit, which includes a DOCSIS 3.0 modem, the required cabling and 30 days of Internet service, costs $69.95. After 30 days, customers can refill the service for seven days for $15, or 30 days for $45, using a credit or debit card or a specialized prepaid card.

Also unchanged is the maximum speed supported by the prepaid service: up to 3 Megabits per second downstream and 768 Kilobits per second upstream.

In an apparent decision to avoid cannibalizing its higher-margin postpaid broadband service, only homes without an active Comcast account are eligible for the prepaid product.

The prepaid approach opens Comcast up to markets it can’t easily pursue with a postpaid product, including former customers who have previously been switched off due to nonpayment and consumers who don’t have bank accounts, or otherwise do not qualify for postpaid broadband service.

That alone represents a potentially large sector. According to a report issued by the Federal Deposit Insurance Corporation (FDIC) last fall that collected responses from nearly 45,000 homes, 8.2% of all U.S. households — nearly 10 million homes — were “unbanked” in 2011. More than one in four homes (28.3%) were either unbanked or underbanked, meaning they “conducted some or all of their financial transactions outside the mainstream banking system,” which includes “alternative financial services” such as payday loans, pawnshops and non-bank check cashing.

The prepaid approach also gives Comcast an opportunity to pursue a sales model that has stoked growth for cellular services. According to SNL Kagan senior analyst John Fletcher, U.S. cellular postpaid services achieved a 2% compound annual growth rate from 2007 to 2012, while the cellular prepaid CAGR jumped 14% during that same period. Regular postpaid cellular subscribers still represented 66% of the U.S. cellular market at the end of last year, versus 15% prepaid, and the rest is a mix that included wholesale providers and mobile virtual network operators (MVNO), subscriptions for tablets, health meters and other types of more non-traditional cellular services.

A prepaid service could likewise give cable companies a new sales vector when traditional, postpaid broadband subscriber growth starts to flatten out.

TAKEAWAY

Comcast is inching toward rollout of nationwide prepaid high-speed Internet service.

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