Comcast's $1B Bandwidth Plan
Comcast Corp. (Nasdaq: CMCSA, CMCSK) expects to shell out $1 billion for an "all-digital" project that will enable the MSO to reclaim 40 to 50 channels of analog spectrum and free up room for Docsis 3.0, a broader video-on-demand (VoD) library, ethnic programming fare, and more than 100 linear hi-def channels.
That's according to Comcast cable division president Steve Burke, who spent a good chunk of this morning's earnings call describing and defending the MSO's big bandwidth-reclamation strategy. (See Comcast Posts Q1.)
That strategy, called Project Cavalry, is "one of the most important projects for us this year," Burke said. "This project is going to deliver more additional bandwidth than any improvement we've ever made."
The moves allow Comcast to recapture up to 300 MHz of spectrum, more than it got when the MSO upgraded 500 MHz plant to 750 MHz. "We estimate the total cost of about $1 billion is less than 10 percent of what a physical rebuild would cost us historically, and we can complete it in a fraction of the time," Burke said, noting that the investment will be spread out over 2009 and 2010.
But Comcast's definition of "all-digital" is a bit wide of the truth. The company intends to leave a programming tier of 20 to 30 channels in analog. About 14 percent of Comcast's customers take its analog service today, and roughly 72 percent have already made the leap to digital.
Depending on the customer's current level of service, the MSO is giving away a number of simple, $30 digital terminal adapters (DTAs) to ensure that secondary TVs customer homes can continue to receive and display programming in the expanded basic tier once it's moved to digital. (See slide 10 in this PDF.) Burke estimates that Comcast will need to deploy about 20 million digital devices for the transition. (See Comcast Seeds Digital Shift With Free Boxes.)
In addition to the cheap DTAs, Comcast is trying to keep costs in check with self-installation kits that curtail the need for pricey truck rolls. The MSO estimates that about 75 percent of customers so far have elected the self-install option.
Comcast already has the project underway in areas such as Portland, Ore., Seattle, and the Bay Area, and is starting to tee it up in its Atlanta, Philadelphia, and Baltimore markets. By the end of the quarter, Comcast had completed the job in about 5 percent of its footprint. (See Comcast 'Cavalry' Rides Into NoCal , Comcast Expanding 'All-Digital' Domain , and Comcast Sends In the All-Digital 'Cavalry'.)
"The results in Portland have been encouraging enough that we are looking at speeding up our rollout to over half our footprint by the end of this year," Burke said, adding that the conversions have given a 20 percent-plus return on investment so far.
During the call, an analyst asked Comcast why it has favored going all-digital over other bandwidth management strategies, such as switched digital video (SDV) or moving to 1 GHz. It's all about timing, ease of deployment, and, of course, the almighty dollar.
"I want to spend as little as possible. I want to have the minimal intrusion on the customer experience. When you analyze all those variables, and you can get a digital adapter for around $30… it all points to going all-digital," Burke explained.
Like its smaller MSO counterpart, Time Warner Cable Inc. (NYSE: TWC), Comcast's revenues and profits both jumped in the first quarter, despite the economy and competition from telcos and satellite TV providers.
Table 1: Earnings Snapshot
|Net Income ($B)||0.732||0.772||5%|
|Source: Comcast Corp.|
But there was more excitement about Comcast's 95 percent growth rate of free cashflow (FCF), which ballooned to $1.4 billion in the first quarter as capital spending dipped 19 percent, to $1.16 billion, and the MSO tightened its grip on other cost controls.
But what will the MSO do with all that dough? "With prodigious FCF all but assured for 2009, a resumption of Comcast's share repurchase program would seem a logical step," Sanford C. Bernstein & Co. Inc. analyst Craig Moffett suggests in a research note.
Comcast added 288,000 digital video customers but lost 78,000 basic subs. However, those losses were better than the 171,000 expected by analysts, and apparently kept in check by customers signing on during the broadcast digital TV transition, which won't be done until this June.
Comcast also added 329,000 high-speed customers, giving it a total of 15.2 million, and 298,000 digital voice customers, extending that total to 6.77 million. Comcast still has 2,000 customers taking phone service using old, crusty circuit-switched technology.
— Jeff Baumgartner, Site Editor, Cable Digital News