Comcast Romps With Subs Gains, Sky Bid

Despite mounting video and voice subscriber losses, the Comcast growth engine just keeps purring along as the company ramps up its pursuit of UK satellite TV king Sky.

Comcast Corp. (Nasdaq: CMCSA, CMCSK) -- which formalized its $31 billion takeover offer for Sky earlier today -- reported adding 273,000 total customers in the first quarter as its broadband and commercial services subs growth easily offset its losses on the video and voice fronts. Most of that growth came on the residential side of the business, where the cableco netted 244,000 customers.

As it has for years now, broadband accounted for the lion's share of that growth for Comcast, which is both the largest cable operator and broadband provider in the US with nearly 30 million total customers. The MSO picked up an impressive 351,000 residential data customers in the first quarter, boosting its total to more than 24.2 million, as it continued to roll out DOCSIS 3.1 technology and 1Gbit/s speeds across the nation. Company executives said DOCSIS 3.1 and its corresponding gigabit service are now available to 90% of their 50-million-home footprint.

"Our focus is very much centered on broadband," said Comcast President & CEO Dave Watson, speaking on the company's earnings call Wednesday morning. "We'll continue to compete in video, we'll continue to be aggressive, but our focus has shifted to the connectivity business."

Comcast also enjoyed strong subs growth for its fledgling mobile business, which launched nearly a year ago. The company reported adding another 197,000 mobile lines in the winter quarter, up from 187,000 in the previous quarter, lifting its total to 577,000 lines. "It's relatively early, but we like the early trajectory" of the Xfinity Mobile business, Watson said.

Even with these promising early results, Xfinity Mobile is far from profitable yet. Comcast said Xfinity Mobile posted a $189 million EBIDTA loss in Q1 as the MSO ramped up its subscriber acquisition efforts and absorbed other costs related to rolling out the new business. Comcast EVP & CFO Mike Cavanagh said he expects the EBITDA losses for the mobile business to amount to "a few hundred [million] more this year."

But Cavanagh noted that these losses are in line with the company's financial guidance for the year. Plus, as he and other executives stressed, Comcast expects to gain some financial benefits from the mobile operations partnership that the company just struck with Charter Communications Inc. last week, with the two cable operators sharing the startup costs as they scale up the wireless business. (See Comcast, Charter Hint at New MVNO Deals and Comcast, Charter Launch Mobile Platform Partnership.)

On a far more disquieting note, Comcast shed 93,000 residential video subscribers in the first quarter, reversing a gain of 32,000 subs a year ago, as cord-cutting and OTT video services continue to take their toll on the traditional pay-TV business. With its residential video customer base down by 310,000 in the last year alone, the company reported that its video revenues actually fell by $47 million, or 0.8%, in the quarter, compared to a year ago, despite price increases.

While acknowledging the fierce nature of the competitive video landscape, company officials insisted that they remain firmly committed to the video business and said they will continue to tackle the market with their flagship X1 service and various segmented skinny-bundle services, such as Xfinity Instant TV. They noted that X1 is now in about 61% of Comcast's 21.2 million video homes and that it's increasingly integrating such popular OTT services as YouTube, Netflix and Pandora, as well as other home networking services, into X1.

"We have pivoted X1 to be a whole-home platform that aggregates the best content, not just linear TV," Comcast Chairman and CEO Brian Roberts said. For example, he noted that X1 "has quickly become the most used platform for Netflix among our customers."

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With the next-gen X1 boxes now installed in nearly two thirds of its video homes, Comcast said cable capex dropped 5.2%, to $1.7 billion in the quarter, reflecting a decline in spending on consumer premises equipment (CPE) for X1 and other products. Cavanaugh said that trend should continue as the cableco moves further away from video-centric CPE and focuses more on "connectivity-driven" broadband services.

On the earnings call, Comcast executives also spelled out their rationale again for pursuing Sky, citing the scale, valuable content, international diversification and technological wizardry that it offers. They also argued that Sky marches up well with Comcast in its mix of connectivity and content assets. (See Eurobites: Comcast Formalizes £22B Sky Bid and Why Sky's the Limit for Comcast.)

"I don't think we have to do this," Roberts said, dismissing the notion that Comcast needs to expand internationally. Calling Sky "a very unique asset," he said "we're impressed with the continuing momentum of the business."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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