Comcast Chief Executive Brian Roberts used a gift-giving analogy as he reflected on his company's expansion into telephony and high-speed Internet access. On a conference call discussing first-quarter results, Roberts said selling those two products in a package with subscription TV"”the so-called triple play"”is 'changing the company and keeps on giving.'
Does it ever. Comcast (CMCSA), the largest U.S. cable company, said it added a record number of high-speed Internet users and signed up more than twice as many phone subscribers as it did a year earlier. Comcast's digital phone service just turned into a $1 billion-a-year business. The gains helped lift sales 32%, to $7.4 billion, and fueled an 80% jump in profit, to $837 million.
But for rivals, Roberts' transformation of Comcast into a telecom provider has a lot to take away. Comcast is on track to leapfrog Vonage (VG) as the No.1 nontraditional U.S. phone-service provider, and it's luring a good number of the customers fleeing traditional phone companies like Verizon (VZ), whose subscribers are disconnecting local lines at a rate of about 350,000 per quarter. Comcast sells calling to 7% and fast Web services to 26% of the homes in its territory. In the next three to four years, Comcast expects to be selling these services to more than half the homes on its turf.
But Roberts isn't stopping at a triple. He's swinging for the fences by expanding in such markets as small business and adding a range of new products and services"”from wireless calling to online entertainment. 'We are going to be a very different company in three to four years,' says Dave Watson, executive vice-president for operations at Comcast Cable. 'We just feel we have this moment in time where we can gain market share and move faster [than others].'
For starters, the company is stepping up efforts to court small and midsize businesses"”a market that could generate $3.8 billion in sales for Comcast by 2011, up from $660 million now, says David Joyce, an analyst at Miller Tabak. On the conference call, Comcast executives declined to elaborate on their small-business plans, other than to say the company will make a push soon. 'It's potentially quite a huge line of business,' Joyce says.
Wireless and online services
To beef up mobile services, Comcast has begun to offer a wireless service called Pivot in select markets through a joint venture with Sprint Nextel (S) (see BusinessWeek.com, 11/3/05, 'Sprint Nextel's Watershed Deal'). Comcast has been touting its wireless plans for months, but active marketing is due to begin in some markets within weeks.
Comcast hopes to one-up existing wireless services by incorporating its own strong suit: TV. Comcast customers in a given city, for example, will be able to access local news clips. 'You see faces that you know,' says John Garcia, president of the joint venture. 'We think that's a nice differentiator.' The service will also eventually let users retrieve home voice mails, view TV schedules, and control digital video recorders via cell phone.
Another area of growth: online services. Comcast already uses its own site as a portal for such content as E! Entertainment Television. But even though Comcast.net ranks fourth among most-popular destinations for Comcast subscribers, traffic to all Comcast's sites has dropped 5% in the past year, according to comScore Media Metrix, which tracks Web traffic.
Forays into content
Comcast hopes to reverse the decline, and go mano a mano with the likes of Google's (GOOG) YouTube and News Corp.'s (NWS) MySpace for a bigger slice of the U.S. online video advertising market, which according to eMarketer may swell to $3 billion by 2010 from $420 million last year (see BusinessWeek.com, 9/18/06, 'YouTube: Waiting for the Payoff'). 'It's still a very nascent market, but the company is doing the right thing [by investing in it],' says Tuna Amobi, an analyst at Standard & Poor's, which like BusinessWeek.com is owned by the McGraw-Hill Cos. (MHP).
As part of its online effort, Comcast on Apr. 16 reached an agreement with News Corp. and NBC to distribute their content and on Apr. 11 bought ticketing site Fandango. Those deals come on the heels of its December launch of GameInvasion.net, an online gaming destination. The company is also trying to lure traffic to user-generated video site Ziddio.com through partnerships with the likes of social-networking powerhouse Facebook.com.
Those and other deals will culminate with the launch later this year of Fancast.com, which will let consumers search, manage, and watch videos, games, and other content across a gamut of devices and channels, including TVs, PCs, and mobile phones. The site may also sell video-on-demand and DVDs.
Acquisitions and upgrades
But expansion comes at a cost, no less for Comcast than any other corporation. For one, more acquisitions are likely. Some analysts believe Comcast may buy an online movie rental company. Others speculate Comcast will invest in a social network like Facebook. 'My assumption is their goal is to build a community around movies and entertainment,' says Richard Greenfield, an analyst with Pali Research.
Then there are necessary technology upgrades. Come July 1, Comcast will likely have to furnish subscribers with newer, more expensive set-top boxes that comply with new Federal Communications Commission mandates. And telecom companies including AT&T (T) are upgrading networks with fiber-optic cables that more capably deliver TV and other services than Comcast's system. Analysts say Comcast may need to follow suit with improvements of its own.
And with each stage of the transformation, Comcast will need to ensure that it's communicating its vision with customers, analysts, and investors"”lest concerns emerge it's spreading itself too thin. 'There's still an open question of what Comcast is going to be when it grows up,' says Craig Moffett, an analyst with Sanford C. Bernstein (AB).
But based on Comcast's ability to reap gifts and rewards of its expansion so far, some analysts are willing to place their confidence in the Comcast that's emerging. Says Phillip Swann, publisher of TVPredictions.com, 'Comcast will just do it faster and better.'
Kharif is a reporter for BusinessWeek.com in Portland, Ore.
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