Comcast gave a little bit more away at this week’s results conference on just how far it intends to push its WiFi network, and revealed that out of 8 million Hotspots, only 7 million of them will be in-home gateways – suggesting that it will build at least 1 million hotspots throughout the US. No wonder its cash generation has gone down and its capex has risen dramatically.
We are still a little annoyed when discussing the number of video homes that Comcast still has, after last quarter it totally obscured its number by changing the way it reports them, going from what it used to call billable customers method of counting customer from its “equivalent billing unit” basis.
Last quarter that resulted in a one time “increase” of about 1 million video customers, and somehow Comcast massaged the numbers to show that for the first time in 7 years it’s video customer numbers had gone up. It then backdated the approach one quarter and said that this was for two quarters back to back. Interestingly it has not changed any prior quarters for backwards comparison except that one, claiming that it is not meaningful.
Anyway the victory has been short-lived, and this quarter the video Comcast numbers fell dramatically by 144,000 to 22.46 million homes. Comcast still claimed a victory saying that this is the smallest fall for 6 years in the second quarter. For 2013 the number was 159,000, 2012 was a fall of 176,000 and in 2011 it was 238,000, so we can back up those sentiments. As usual the new Xfinity UI was not singled out for praise as one of the main things slowing TV desertions.
High Speed Internet additions was also claimed to be the largest in the second quarter for 6 years at 203,000, and this compares with 187,000 (2013); 156,000 (2012) and 144,000 (2011) to sit at 21.27 million from its filings.
Voice customers have only grown by 137,000, which is one of the worst figures during this period, with the 2013 figure being 161,000 and before that 158,000 (2012) and 193,000 (2011). Comcast was not quite so keen to make a boast around this figure.
One of the most significant figures is yet another dramatic increase in Business services revenue up 22.4%. Last quarter this was up some 23.9%, as it chased the WiFi opportunity into the business side.
Business Services are Comcast’s fastest growing revenues steam, growing 22.4% from Q2 last year to this, a jump to $965 million of revenue, and we expect other US cable results to show the same trend.
Back in June Comcast launched a dual mode 802.11N gateway for business which acts as an Access Point for both 2.4 GHz networks and 5.0 GHz networks simultaneously, and comes with two SSIDs, for access for the business and as a hotspot. Comcast says that its Business Services revenue is now approaching a $4 billion annual run-rate and it has overtaken voice as its third largest revenue stream (after video and broadband).
Comcast said that the small end of the market with less than 20 employees continues to be its strongest growth area, while the contribution from mid-sized businesses is increasing.
And Neil Smit, President and CEO, Comcast cable revealed that there are now 3.6 million hotspots in place across the in-home network and that out of the 8 million the company has declared it wool reach by year end, close to 7 million will be in-home versus out of home.
Let’s look at the number for a moment. Comcast has so far supposed to have only built about 150,000 out of all the 250,000 Hotspots that are available to Comcast through the CableWiFi Alliance. If either Comcast or even the entire Alliance is to get to 1 million specialist APs this year, then there are at least another 750,000 to install US-Wide. And Smit seems to be talking purely about Comcast building out that number.
“We’re currently extending the out of home markets at a pretty aggressive pace and so the network will fill out. And you would add to those in-homes, those SMB locations where we have dual SSIDs,” he said.
Smit added, “We think our Wi-Fi network has a lot of potential. We’re not buttoned down totally on how we’d like to deploy that. But there’s lot of opportunities for example, the Xfinity home product we launched across the WiFi network and there are other products that Wi-Fi can be the foundation for.”
Here he is talking about offering a Cloud DVR through the Xfinity TV Everywhere product, that has now been rolled out to a 31% of the Comcast network. He fielded questions about Mobile First services and using MVNOs but would not make any definitive statement on what’s the next service to be launched across the WiFi network.
Smits added that where WiFi is installed consumers are offloading between 75% to 80% of data usage in either the home or the office.
Comcast said that its cable CapEx spend will accelerate in the second half of the year as it deploys more X1 platform boxes and wireless gateways.
Brian Roberts, Chairman and CEO, said, “We continue to see strong momentum across our cable and content businesses. In Cable, we posted the best second quarter customer results for both video and high-speed Internet in six years and saw tremendous demand for our X1 product, which is a truly transformative experience. We are also pleased with the continued rapid growth of business services, which has quickly become an important engine for the company. NBCUniversal had another excellent quarter with double-digit operating cash flow growth driven by solid results in each segment and a first place finish for NBC for the 2013/2014 broadcast television season.”
Total revenue for NBC and Comcast was $16.8 billion for the quarter up 3.5% over this time last year. Capex was up 20.4% to $1.5 billion in cable, and free cash flow was down by 40.7% to just $1.2 billion in the quarter. Comcast now has 9.7 million homes that take all three services – TV, broadband and fixed voice.
In high-speed data, Comcast has 47% of its customers base receiving a 50 Mbps or faster products, up from 38% at the end of the first quarter.
In the Q&A the executives fielded questions about advertising and said that it had made up half the gap in cost per thousand impressions at NBC, compared to rivals, but that the total upfront sales for the entire market had been down 5%, while Comcast added some $750 million to its ad sales. NBC had used a combined strategy for its broadcast and cable upfronts, rather than separating them, and said it had managed to co-ordinate sales across both.
It has also begun rolling out dynamic ad insertion to programmers who supply it with on demand content through Canoe Ventures. Chairman and Group CEO Brian Roberts said that it had virtually disabled fast forward and cut a deal with programmers to share revenue on dynamic ad insertion, but would not talk about the nature of the financial transaction.
Finally in a separate announcement, Comcast has cut a deal with studio Lionsgate, rather similar to the one it cut in China last week, to expand their partnership around a new app for the motion picture Divergent, which expands the content considerably, where Xfinity customers can view extra content.