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Comcast's Mobile Sub Growth Slows, but Other Mobile Metrics Improve

Jeff Baumgartner
4/25/2019
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Comcast's mobile business turned in a mixed bag in Q1. While the rate of subscriber growth slowed in the period, revenues jumped 24% and losses tied to Xfinity Mobile shrank significantly.

Comcast, which now tucks Xfinity Mobile into its cable business results, added 170,000 mobile lines in Q1, extending its total to about 1.4 million lines. Q1 mobile line gains were off from adds of 196,000 lines in the year-ago period and adds of 227,000 lines in Q4 2018.

At the same time, Comcast mobile revenues rose 21.4%, to $225 million. Operating cash flow from Comcast's mobile business improved to -$103 million in Q1, compared to -$191 million in Q4 2018, and -$189 million in the year-ago quarter.

Comcast, which is bundling mobile with broadband and not offering it as a standalone business, said the Xfinity Mobile business is scaling up and remains "on track" to achieve a standalone profit.

"We like the volumes we got in this quarter [with mobile], particularly in light of what you see from the industry overall," Mike Cavanagh, Comcast's senior EVP and CFO, said on today's earnings call. "We're starting to see the benefits of scale is the short story on the financials."

Comcast, which isn't using mobile to compete directly with incumbents such as AT&T, T-Mobile and Verizon Wireless (Comcast's MVNO partner), said Xfinity Mobile is having a positive effect on customer churn.

"We are seeing some improvements in retention, and that's exactly what one of our top goals were," Dave Watson, president and CEO of Comcast Cable, said.

Still, the slower rate of customer adds also means that cable has yet to have a "disruptive impact" on the mobile industry, BTIG analyst Walter Piecyk said in a research note. Comcast's net adds of 170,000 in the category were below his estimate if 200,000, though the EBIDTA loss in Q1 was well below his expectation of $172 million. Other analysts have suggested that Comcast and Charter Communications will need to rework their MVNO deals with Verizon for their respective mobile services to achieve profitability.

Broadband gains offset video losses
Like other pay-TV providers, Comcast saw its residential video sub base shrink in Q1 -- it lost 121,000 in the period (giving it a total of 20.85 million) a bit worse than the loss of 109,000 subs expected by analysts. However, Q1 video losses at Comcast, at 1.8% year-over-year, are faring better than the 4% rate at which the rest of the industry is contracting, Craig Moffett, analyst with MoffettNathanson, pointed out today in a research note.

Comcast reiterated that it is applying its video focus to high-margin subs and not chasing after low-value, unprofitable pay-TV subs that are being targeted by a slew of competitive OTT-TV services.

Broadband, now the epicenter of Comcast's relationship with customers, remained strong, as the MSO added 325,000 residential subs, extending that total to 25.44 million. Median broadband home data usage in Q1 was about 200 gigabytes, up 35% year-on-year.

"The engine of growth for our business is broadband," Cavanagh said.

Revenues for cable business services, another growth driver, rose 9.5%, to $1.9 billion, as Comcast saw demand grow in areas such as advanced WiFi, video surveillance, wireless backup and SD-WAN.

Comcast had no early results to share for Xfinity Flex, a video streaming product for broadband-only customers that is powered by its X1 platform (including the X1 voice-based navigation and search system) and integrated with OTT services such as Netflix, Amazon Prime Video and YouTube.

"It's an important long-term product," Watson said of Flex, adding that it is being used early on in a "targeted fashion" to build a broader video relationship with Comcast's broadband-only customers. "We think Internet-delivered video is a good thing for the cable business."

He reiterated that Flex will continue to be offered in Comcast's cable footprint, though discussions are underway for X1 syndication partners to launch their own versions of the product. Among that group, Cox Communications has already said it's working on its own iteration of that product.

Comcast's cable capex declined 19.4% to $1.4 billion, due in part to lower spending on customer premises equipment and infrastructure following the recent completion of its DOCSIS 3.1 network deployment.

Comcast's MVNO approach is "very capital light," so the amount of mobile capex was immaterial to the prior year and 2019 capex guidance, Cavanagh said.

What to do with Hulu?
Comcast didn't reveal any new plans for its 30% stake in the Hulu joint venture, which is now majority-owned by Disney. "We have no new news today other than [to say] it's really valuable and we're really glad we own a large piece of it," Brian Roberts, Comcast's chairman and CEO said.

AT&T recently dealt its 9.5% stake in Hulu for a cool $1.43 billion, which could value Comcast's stake in the realm of $4.3 billion.

That kind of financial return might prove to be too tempting for Comcast to resist. CNBC reported Thursday that Comcast is in talks to sell its stake to Disney, adding that Comcast is still weighing the pros and cons of such a move. Some industry watchers speculate that Comcast will hold onto that stake just to annoy Disney, while less spiteful views hold that Comcast could keep the stake so it can continue to gather important insight into OTT economics.

A portion of the call centered on NBCU's plans to launch a direct-to-consumer product next year that will be offered for free to Comcast's and Sky's pay-TV customers and on a standalone basis. NBCU's offering will support both subscription and advertising revenues. Analysts asked how NBCU's offering will compete with new OTT offerings coming way of Disney and WarnerMedia.

Steve Burke, NBCU's CEO, said the direct-to-consumer market is in its early days, so there's "plenty of room" for a range of OTT services and business models.

He said NBCU's angle into that market will enable the programmer to achieve OTT profitability more rapidly that it could if it were to rely solely on a direct-to-consumer offering.

"We look at it as a real opportunity, given all the content we have and the real strengths we have," Burke said, adding that the DTC model will "power the company for decades to come."

Others are not as optimistic. "In short, Comcast simply doesn't have the DTC opening that Disney has," Moffett wrote, wondering what this future holds for NBCU network properties such as USA Network or Bravo.

Even as it dabbles in that market, "Comcast's best path forward is to defend the status quo," he added.

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— Jeff Baumgartner, Senior Editor, Light Reading

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