Comcast Flashes Cash at Biz Services, SDV

Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s capital spending rose slightly in the second quarter due to increased investments in business services and "product enhancements" linked to switched digital video (SDV) deployments, IP technology adoption, and work involving "converged services."

Overall, Comcast's second-quarter capex hit $1.13 billion, up from $925 million in the first quarter, and from $1.12 billion in the year-ago period. (See Comcast Posts Q2.)

Broken down by category, spending on business services reached $109 million in the quarter, up from $85 million a year ago, and from $96 million in the previous quarter.

A growing portion of that expense is attributed to Comcast's faster move up market to the mid-sized business segment (20 to 250 employees) and the introduction of metro Ethernet technologies -- a trend at the MSO that Light Reading Cable identified earlier this month. (See Comcast Chases Big[ger] Business .)

And there's a pretty good reason why Comcast is throwing more cash at the business services segment: It's getting some results at the expense of the telcos.

The MSO's commercial services segment had revenues of $306 million in the quarter, a 54.4 percent year-on-year increase. Comcast chief financial officer Michael Angelakis told analysts and investors this morning that biz services revenues grew 45 percent without factoring in Comcast's recent acquisitions of Cimco Communications and New Global Telecom. (See Comcast Snares a CLEC and Comcast to Acquire New Global Telecom .)

"We're firing on all cylinders in this business," Comcast COO Steve Burke boasted.

Angelakis said capital spending throughout 2010 will increase "modestly" as Comcast looks to sustain its business services efforts and chase down mid-sized commercial and cellular backhaul opportunities. However, he also expects total 2010 capital spending to come in lower than 2009's on a dollar and percentage of revenue basis. Comcast's capex totals in 2009 reached $5.1 billion, representing 14.4 percent of revenues.

Comcast wasn't as granular pertaining to its SDV-related spending in the second quarter, but the company has said previously that it intends to start deployments this year in a limited number of markets, followed by broader rollouts in 2011 and 2012, expecting the move to help find headroom for about 150 HD channels. (See Comcast Getting Ready to Uncork SDV.)

As IP and converged services investments go, some of that is tied to the MSO's "Project Infinity" initiative, which is relying on a new content distribution network that's starting to reach the deployment phase. (See Comcast's 'Project Infinity' Takes Flight .)

Financial update
Comcast saw first-quarter revenues rise and profits slip in the quarter. It also saw healthy increases in such advanced service categories as high-speed Internet, but continued to bleed basic video subs in a quarter that has historically been subject to seasonal service turn-offs fueled by students leaving college and customers departing vacation towns.

Although Comcast did see organic growth in most categories, the loss of 265,000 basic video subs in the period was particularly glaring, considering analysts were expecting a loss of about 169,000. However, video ARPU (average revenue per user) still rose 3 percent thanks in part to rate increases and digital upgrades.

Table 1: Financial Snapshot
Q2 2009 Q2 2010 Change (%)
Revenues ($B) 8.980 9.520 +6%
Net Income ($B) 0.967 0.884 -9%
EPS ($) 0.33 0.31 -6%
Source: Comcast

Table 2: Subscriber Trends
Q2 2009 Q2 2010 Cumulative Sub Total (End of Q2)
Total video net adds -214,000 -265,000 23.21 million
Digital video adds 250,000 394,000 19.23 million
High-speed Internet adds 65,000 118,000 16.45 million
Digital voice adds 233,000 230,000 8.12 million
Source: Comcast

Other nuggets from today's earnings call:

  • Comcast has deployed more than 13 million Digital Terminal Adapter (DTA) devices to fuel its all-digital "Project Cavalry" effort. That project is active in 80 percent of Comcast's footprint, and is targeted to be mostly complete by the end of the year. (See Comcast's $1B Bandwidth Plan .)

  • Comcast has Docsis 3.0 rolled out in north of 80 percent of its footprint and anticipates having the upgrade "substantially complete" by the end of 2010.

  • Comcast chairman and CEO Brian Roberts acknowledged that the Federal Communications Commission (FCC) "needs reasonable rules" to implement its National Broadband Plan, but he's pleased that "it seems the extreme scenarios are off the table," referring to Commission's "Third Way" proposal on a new way to classify broadband services. (See Cable Tees Off on FCC's 'Third Way' Proposal.)

  • Will Comcast consider going "over-the-top" and offer subscription video services out of market? The operator didn't exactly deny such plans, but Roberts said the "principal focus really is in-market," and that "we haven't seen other business models that make sense to us at this time out of market."

  • The MSO says it's on track to close its acquisition of NBC Universal by year's end. (See Policy Watch: Who's Afraid of Comcast-NBC? and WOW: Comcast-NBCU Menaces Service Rollouts.)

    — Jeff Baumgartner, Site Editor, Light Reading Cable

  • Jeff Baumgartner 12/5/2012 | 4:28:39 PM
    re: Comcast Flashes Cash at Biz Services, SDV

    The NBCU deal isn't done yet, but it's already affecting Comcast's bottom line. I neglected to mention this earlier, but Comcast did say that profits were weighed down by costs associated with its in-the-works purchase of NBC. JB

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