Comcast’s broadband market dominance slipped in the fourth quarter as the provider shed more domestic broadband subscribers, but it maintains ongoing network upgrades to support multi-gigabit speeds.
The cable MSO is pursuing several initiatives to enhance network capacity and offer multi-gigabit symmetrical speeds that can be done without forklift upgrades. These initiatives include the deployment of mid-splits and leveraging DOCSIS 4.0, which, along with its fiber network, it says will enable the delivery of multi-gigabit symmetrical speeds across its footprint.
Mid splits are an upgrade that enables customers to use a 1.2 GHz spectrum within the coaxial portion of the link, with a more significant part of the range dedicated to the upstream path than earlier methods. The service provider has deployed mid-splits to about 35% of its footprint and expects that to reach around 50% by the end of 2024.
In October, Comcast debuted its DOCSIS 4.0-based X-Class service in Colorado Springs. The X-Class Internet portfolio includes speed tiers of 300 Mbps, 500 Mbps, and 1 Gbps up to 2 Gbps. Comcast has also rolled the DOCSIS 4.0 service out in the Atlanta and Philadelphia metro areas.
Jason Armstrong, CFO of Comcast, said the provider will “continue to launch additional [DOCSIS 4.0] markets this year.”
In tandem with its DOCSIS and mid-split initiatives, the service provider is expanding its network reach, passing nearly 1.1 million new homes in businesses in 2023. Comcast plans to continue its footprint expansion effort this year at a similar or even higher pace.
Armstrong said that these initiatives and crafting various broadband packages will drive new adoption of its broadband services. “We are focused on what we can control,” Armstrong said. “That means segmenting our customer base by offering our customers the right price, including value options at different speed tiers and driving ARPU ahead in an environment where broadband subscriber growth remains challenged. And we're doing this in the context of aggressive network upgrades and expansion, putting us in a great position to return to subscriber growth eventually.”
Battling fiber, FWA competition cycles
A key issue facing Comcast and other cable operators is the growing competition from aggressive fiber broadband and fixed wireless access (FWA) providers.
AT&T and Verizon made fiber gains in the fourth quarter, adding 273,000 and 55,000 fiber broadband subscribers, respectively. These providers also saw gains with their FWA offerings, adding 67,000 Internet Air net and 375,000 5G Home Internet subscribers.
While Comcast acknowledges fiber is a competitive force, Comcast sees it as a competitive cycle that drives it to revisit its strategy. “During some of these cycles, there's a new footprint, and some unique discounting occurs,” said David Watson, president and CEO of Comcast Cable. “Fiber is a pretty good example of one we went through years ago and continue to have. There's pressure on net broadband additions as you go through the initial phase of the cycle. But we evolved our approach, and we have and continue to compete very well against fiber.”
Comcast is taking a similar approach to battling FWA. Like the fiber providers, FWA providers have been luring subscribers in rural and increasingly urban areas with lower-cost offerings.
“I think this cycle is headlined by fixed wireless and the emphasis on more of the lower-income segment,” Watson said. “There's some offer pressure, but we have continued to adapt. The key for us through this cycle is to continue to build better products from the network to the Wi-Fi experience.”
He added, "We want to be in a position to compete as things shift.”
Another long-term growth driver for Comcast is wireless. Comcast added 310,000 new lines during the fourth quarter, ending the period with 6 million. Having only achieved 11% penetration, Comcast sees potential growth upside.
“Wireless is one of the critical long-term growth drivers for us,” Watson said. “It is a great companion to broadband and has good standalone economics and a great runway ahead for penetration mobile to the broadband base.”
As the cable industry faces greater competition from fiber and broadband wireless providers, consumers and businesses can’t seem to get enough broadband.
According to a recent Leichtman Research Group (LRG) study, 92% of U.S. households get an Internet service at home, up from 83% in 2018 and 76% in 2008. Broadband accounts for 98% of households with an Internet service at home, and 90% of all households get a broadband Internet service – an increase from 81% in 2018 and 57% in 2008.
The ongoing adoption and growing broadband usage make Comcast confident it can still take market share.
“While the competitive environment will remain at these levels for some time, broadband is still a huge, healthy and profitable market," said Michael Cavanagh, president of Comcast. "The consumption trends that we're seeing are encouraging for the future,” Customers are connecting more devices in their homes. They use them for applications requiring more capacity, faster speeds, and lower latency.”
During the fourth quarter, Comcast lost 34,000 broadband subscribers, including 31,000 residential and 3,000 business customers, lowering its total broadband subscriber base to 32.25 million (29.7 residential and 2.5 million business). Analysts expected that Comcast would lose 62,000 broadband subscribers.
The cable MSO’s connectivity revenue grew 7%, driven by 4% growth in domestic broadband, 15% in domestic wireless, and 19% in international connectivity, while Business Services Connectivity revenue grew 6%.
Revenue for total Connectivity & Platforms was flat at $20.4 billion. Domestic broadband, domestic wireless, international connectivity, and Business Services Connectivity revenue increased 7% to $11 billion in its core connectivity business.
“Domestic broadband was once again driven ARPU growth of 3.9% for the quarter and the year, landing at the high end of our historical 3% to 4% range,” Armstrong said. “In contrast, our base of 32 million broadband subscribers remained stable over the past year, including the 34,000 subscribers’ loss this quarter.”
Comcast’s revenue climbed 2.3% to $31.3 billion in the fourth quarter, well above the $30.4 billion analysts had expected. Adjusted earnings per share gained to 84 cents, also beating projections.