Big, Bigger, Biggest… Bigger Still

Comcast has plenty of available bandwidth to indefinitely expand its High Speed Internet services at speeds up to 3Gbps and believes it has won the legal right to grow its cable business as large as it likes.

Comcast executives admitted Wednesday they have more than enough network capacity to meet the demands of customers, both now and well into the future.

“With regard to usage and capacity, we feel the network is flexible and has plenty of opportunity to grow in capacity,” said Neil Smit, president and CEO of Comcast Cable Communications. Smit was responding to a Wall Street analyst asking about future capacity during a quarterly financial results conference call.

Smit noted that some of the biggest bandwidth users served by Comcast are businesses, and the cable operator was well-positioned to service them by extending fiber or deploying its Metro Ethernet product. Residential customers get increased bandwidth through neighborhood node splitting or DOCSIS 3 channel bonding that combines several channels together to increase speed and capacity.

Brian Roberts, CEO of Comcast Corporation, agreed with Smit, adding, “the more the consumer desires speed, the better that is for our company.”

Roberts noted DOCSIS 3.1 — the next generation of cable broadband — was “promising technology.”

“At the cable convention, we demonstrated 3Gbps” over Comcast’s existing cable infrastructure, said Roberts.

Smit

Comcast is easily the country’s largest cable operator, but many believe it is restrained from growing larger through mergers and acquisitions because of antitrust concerns. But thanks to a number of lawsuits initiated by Comcast, the company believes it can now grow as large as it likes.

Roberts admits the question of cable industry consolidation remains a gray area, particularly for Comcast. But he told investors he does not believe there are any remaining legal hurdles preventing Comcast from buying out other cable operators, despite earlier FCC rulemakings limiting the maximum size a cable company can grow through buyouts.

Comcast yesterday announced its last buyout — NBCUniversal — helped fuel a 29% increase in net income in the second quarter, thanks in part to strong results from film and television.

But many of Comcast’s largest gains came from its cable business.

Despite continued losses of video subscribers (159,000 in the second quarter), Comcast’s cable revenue increased 5.8% to $10.47 billion, and operating cash flow grew 5.7% to $4.3 billion. Comcast, which also owns several NBC broadcast affiliates, is playing for both sides of the retransmission consent wars. Its owned and operated television stations have demanded higher fees to be carried on cable systems, many owned by Comcast itself. The increased programming costs fuel subscriber rate increases, which also boost revenue.

Broadband is way up, although the company keeps losing video customers to cord-cutting.

Comcast’s broadband revenue has continued to grow dramatically. Customer additions for High Speed Internet access were up more than 20% in the quarter — the best second-quarter growth in five years — even as subscribers paid more for the service because of rate increases. Customer growth and price hikes delivered 8% growth in broadband revenue. In the last quarter alone, Comcast earned $2.6 billion from its broadband business.

Comcast is not spending a significant percentage of that revenue on enhanced broadband network upgrades. Instead, the company has increased investments to wire office parks and businesses to entice commercial customers, which account for a substantial amount of new customer growth. Comcast is also investing in research and development of new products and services, such as set-top boxes. The company also expects to pay 10% more in programming costs than it did a year earlier.

Year-to-date cable communications capital expenditures have increased 7.1% to $2.3 billion representing 11.3% of cable revenue. Comcast expects that for the full-year of 2013, cable capital expenditures will increase by about 10% over 2012.

Some other highlights from the quarter:

• In the last six months, Comcast completed broadband speed increases for 70 percent of its customers;
• High Speed Internet revenue was again the largest contributor to Comcast’s cable revenue growth;
• At the end of the quarter, 33% of Comcast’s residential high-speed customers take a higher speed tier above its primary service;
• Comcast has pushed Wi-Fi hard, installing more than four million wireless gateways and boosted Wi-Fi coverage to 250,000 hotspots through both cable partnerships and its home hotspot initiative;
• Comcast’s new X1 cloud-based set-top platform has been introduced to more than half of its national service area and will be available everywhere by the end of 2013. By the end of the year, Comcast also expects to push a firmware update to installed boxes to upgrade them to its new X2 platform;
• The average Comcast subscriber now pays the company $160 per month, up 7.4% from last year. Rate hikes, speed upgrades and growing programming packages account for the higher price;
• 77% of Comcast video customers took at least two products and among those, 42% took phone, broadband and television service.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Comcasts Cable and Media Units Grow 7-31-13.flv[/flv]

Bloomberg reports Comcast is still having trouble holding on to its video-only customers, but broadband customer growth continues to explode. Comcast also does well because it owns a number of cable networks and entertainment properties. Expect Comcast to continue evolving its products to bring them closer to the things people do online.  (3 minutes)

An older Comcast Wireless Gateway (Model 2)

Comcast customers may soon find themselves providing free Internet access to other Comcast customers under a new initiative announced today that will turn millions of homes into Wi-Fi hotspots.

The “xfinitywifi” project will activate a second 15-25Mbps Wi-Fi signal from Comcast’s XB2 and XB3 wireless gateways that any Comcast broadband customer can reach as long as they stay within 250-300 feet of the gateway.

“We’ve been able to add certain feature functionality to the firmware of our devices,” Tom Nagel, senior vice president of business development, told CED. “The way its architected is we sort of logically split the modem in two. On the private side, you still get the same things. You can do your own security, you can manage, you can do port forwarding and all the things that no one really understands but are available to you. On the public side what happens is it’s logically a separate network. We actually provision a separate service flow to that cable modem for the public side. If that public side uses up what we’ve given them, there is no getting from someone else.”

In simplified terms, Comcast is opening up a second dedicated Internet connection for its public Wi-Fi service that will not share your existing broadband service. The two networks will co-exist from the wireless gateway, and although the available bandwidth cannot be combined to increase connection speed, customers do have the option of connecting various wireless devices to either the home Wi-Fi or public Wi-Fi connection. The public Wi-Fi service is exempt from usage measurement, caps, and/or consumption-based billing at this time. (Comcast last year suspended usage caps in all of its service areas except Nashville and Tucson.)

In beta tests, Comcast claims customers did not object to sharing their Wi-Fi wireless gateways as long as it did not affect their speed and protected their privacy.

Nagel says the service was designed to address both concerns, noting a 50Mbps Blast customer will still have full access to 50Mbps service, regardless of how many wireless visitors are connected to the customer’s gateway.

“There’s also no leakage of the public and private security functions as well,” Nagel said. “We do two totally different security regimes in the box and there’s really no way to get in between the two. We do provide people the ability to opt out of the service but there have been very few people that have done that, like sub fractions of 1 percent.”

Comcast enables the new service with a firmware upgrade automatically sent to customers when an area is ready for a Wi-Fi launch. Customers in Washington, D.C.; Philadelphia; Boston; Northern Virginia, Chicago, Atlanta; Delaware; and California will likely be among the first to receive the new service.

Some customers do have a problem with Comcast charging them for equipment Comcast is appropriating for its own benefit.

“This is a fine deal for Comcast, which can keep charging customers $7 a month for their gateway and benefit from millions of new hotspots they did not have to build themselves,” said Comcast customer David Tate. “If customers get wise and buy their own [gateway/cable modem], Comcast’s new Wi-Fi service will begin losing hotspots as customers return the equipment to avoid the fee. They should be charging a lot less or nothing at all for equipment if they want us to host their hotspots.”

Tate also believes Comcast will ruin its own service if they attempt to bring usage caps back.

“If Comcast brings back the cap, I wouldn’t want anyone else sharing my connection and I would avoid using Comcast’s Wi-Fi if they counted that usage against my allowance,” Tate explained. “If they exempt the wireless service from caps, customers can just connect to that network to avoid the cap so they would have a big loophole.”

Providers establishing Internet Overcharging schemes like usage caps, so-called “consumption billing,” and speed throttles that force subscribers into expensive upgrades are planning for a growth industry in data consumption.

According to new research from a firm that specializes in market strategies, data usage is going up and fast.  Providers that seek to monetize that usage could win enormous new profits just sitting back and waiting for customers to exceed the arbitrary usage caps some companies are now enforcing with their customers and take the proceeds to the bank.

iGR says the demand for connectivity inside the home is at an all-time high, with the biggest growth coming from wireless Wi-Fi connections.  The more devices consumers associate with their home broadband connection, the greater the usage.

That is one of the reasons why providers are increasingly supplying customers with free or inexpensive Wi-Fi routers, to make the connections quick, simple, and potentially profitable down the road.

Comcast's Wireless Gateway: A Future Money Machine?

Comcast announced this week it would supply a free 802.11N “home gateway” free of charge to every new customer signing up for Blast!, Extreme 50 or Extreme 105 broadband service.  In addition to wireless connectivity for every device in the home, the Xfinity Wireless Gateway also includes a built-in cable modem and phone service adapter.  Time Warner Cable strongly encourages new DOCSIS 3 customers use their equipment for Wi-Fi service as well.  AT&T has included its own wireless gateway with U-verse for a few years now.

The offer is hard to refuse.  Nearly 80 percent of homes use wireless access, connecting cell phones, tablets, laptops, personal computers, game consoles, and even set top boxes that let customers stream video entertainment to their television sets.

iGR found average usage in heavily-connected homes at the all time high of 390GB per month.  By 2015, that will rise to more than 440GB per month.  Both numbers are well in excess of average consumption limits by providers like Comcast and AT&T, which top out at just 250GB per month.  Of course, not all Wi-Fi usage is based on traffic from the Internet.  Some users stream content between computers or devices within the home.  But the research is clear — usage is growing, dramatically.

Video is by far the biggest factor, according to iGR.  Their report, U.S. Home Broadband & WiFi Usage Forecast, 2011-2015, says the appetite for downloaded and streamed video is only growing.

Matt Vartabedian, vice president of the wireless and mobile research service at iGR, says home Wi-Fi has become inextricably woven into the personal, social and business fabric of today’s life.

Broadband is increasingly seen by consumers as an essential utility, as important as the home wired telephone, safe drinking water, and reliable electric and natural gas service.

Providers are positioning themselves to take advantage of the growth market in data by establishing what, at first glance, may seem to be generous (often inflexible) usage limits that remain unchanged years after introduction.  While only a handful of consumers may cross those provider-imposed thresholds at first, within a few years, it will be more uncommon to remain within plan limits, especially if you watch online video.