As the market for video shifts, broadband is becoming the “epicenter” of Comcast’s residential business, Brian Roberts, Comcast’s chairman and CEO, said Thursday on the company’s Q3 earnings call.
“Our broadband business is increasingly the epicenter of our relationship with customers, and ultimately where we derive the majority of our profitability,” Roberts said.
“We see lots of opportunity in our data connectivity businesses,” Roberts said, noting that Comcast’s residential and business data groups generate about $20 billion in revenue per year, are growing at about 10%, and remain accretive to the company’s margins.
Still, Comcast, which lost 125,000 pay TV subs in the period, remains committed to video, Roberts stressed. “We’re well equipped to compete.”
“We saw this evolution coming and think we have invested in the pieces that will ultimately define long-term, profitable success,” he said, adding later that improvements to the customer experience have helped to reduce customer calls handled by agents by 4 million in Q3 alone.
Regarding video, the competitive effect of OTT competition “appears broad-based across our footprint and has moderately accelerated as some additional new OTT players have recently launched,” Michael Cavanagh, Comcast’s senior EVP and CFO, said.
Comcast will continue to battle that trend with product bundles used in tandem with X1, which is now taken by 57% of Comcast’s residential video base, up from 45% a year earlier. It will also continue to take a surgical approach to the market with Xfinity Instant TV, a streaming service that’s currently being offered with broadband within Comcast's cable service footprint.
Dave Watson, president and CEO of Comcast Cable, said the company still likes its position with video, holding that the capabilities of X1 make Comcast “a different video competitor.”
As for Xfinity Instant TV, a slimmed-down bundle for “broadband-first” customers launched in beta form last month, Watson said it provides Comcast with a “unique opportunity” to target that segment.
“It’s a good retention opportunity as well,” he said. “It’s way early, but we’re pleased with the out-of-the-gates response to it.”
A business focused more on broadband, despite the competitive effects on the pay TV business, will juice ARPU at Comcast, Craig Moffett, analyst with MoffettNathanson, explained in a research note.
“As Comcast’s video subscriber base declines, their broadband ARPU reflexively accelerates,” Moffett wrote (Comcast’s broadband ARPU is growing 3.7% year-on-year).
Moffett added that this doesn’t necessarily come from price increases, but rather through “the simple unwinding of bundled discounts,” because standalone broadband service costs more than one that is bundled.
New Bundles Emerge
Cavanagh said the “next opportunity” for Comcast to expand its bundled offerings centers on Xfinity Home, its smart home/security product, and Xfinity Mobile, a service for broadband subs launched in May that leans on Comcast’s WiFi network and MVNO deal with Verizon.
Xfinity Mobile has more than 250,000 customer lines, and Xfinity Home has surpassed the 1 million subscriber mark, with 90% of Xfinity Home customers taking three- or four-product bundles.
Roberts called Xfinity Mobile’s early results as a “great achievement,” but acknowledged that its represents a sliver of the overall mobile market.
“I like our wireless strategy a lot,” he said. “We’re using wireless to help our very valuable broadband business…When we hit a certain scale, hopefully in the next year or so, we will then be able to be in a position where every sub is profitable on its own merits, and that's the nature of the wholesale relationships that we've made."