Entries in Comcast (3)


DirecTV and AT&T Narrow the Gap for Top Spots in Video, Wireless

3Q11 Connections: Ten Largest Providers

The top providers by connections in all categories remained the same in 3Q11: AT&T (NYSE:T) in wireline voice, Verizon (NYSE:VZ) in wireless and Comcast (Nasdaq:CMCSA) in video. In wireless and video however, the second place finishers narrowed the subscriber leads in 3Q11, outgaining the top dogs for the quarter.

While AT&T has had a difficult month on the T-Mobile front, the #2 wireless provider outperformed Verizon in 3Q11. It added 2.1m wireless connections in the quarter--surpassing the 100m mark--and outgained Verizon by 700k connections. Overall, the top ten wireless providers added a combined 4.9m connections in the quarter, while the top ten wireline voice providers lost nearly 2m voice lines.

In the video top ten, it was DirecTV (Nasdaq:DTV) making a charge at #1 Comcast in 3Q11. Benefiting from the move to offer its flagship NFL Sunday Ticket package for free, the leading satellite provider added a net 327k U.S. subscribers in 3Q11—its best third quarter gain in six years. DirecTV took nearly 500k subs off of Comcast’s lead, as the leading cableco shed 165k video subs in the quarter. With 19.8m video customers, DirecTV trails Comcast by 2.6m connections. Elsewhere, AT&T and Verizon both experienced around 2.5% growth in video subs QoQ, the strongest percentage growth of the top ten providers.

In wireline voice, the four cablecos in the top ten reported slim QoQ connection gains in 3Q11, while the six LECs in the top ten shed a combined 2.1m connections in the quarter. AT&T accounted for a majority of the losses, dropping 1.2m connections, or 3% of its wireline voice customer base. The #2 and #3 wireline voice providers didn’t fair much better, as Verizon and CenturyLink (NYSE:CTL) lost 478k and 254k subs QoQ in 3Q11.

Looking ahead in the top ten categories, the battle for first in wireless should be interesting to watch. After a strong 3Q11 for AT&T, its acquisition of T-Mobile is now on life support, creating some uncertainty for company. Meanwhile, through its spectrum acquisition from the cablecos, Verizon is making moves to solidify its top spot in wireless.


2Q11 Connections: Ten Largest Providers

Smartphones and Tablets Accelerate Wireless Growth 

Compared to 1Q11, there was not a lot of movement among the top communications provider rankings, as AT&T (NYSE:T) extended its lead in wireline, Verizon (NYSE:VZ) topped wireless and Comcast (Nasdaq:CMCSA) took first place in video once again in 2Q11. While the rankings haven’t shifted much, there are some interesting trends at play within the top ten lists.

If you compare the top ten sub totals in all three categories, the wireless count continues to dwarf the video and wireline connections by increasing margins in each quarter. The upward trend in wireless is directly linked to the popularity of smartphones, and other wireless connected devices such as tablets, and netbooks. Verizon and AT&T combined to activate around 6m iPhones in 2Q11, which included nearly 1.5m new subscribers. The two wireless giants alone accounted for 205m wireless subs in 2Q11, and industry-wide there are now more wireless connections in the U.S. then there are people according to a recent CTIA report.

Elsewhere, in video, the subscriber base for the leading cablecos continued to erode in 2Q11, while satellite providers and telcos enjoyed slight gains. The top video provider, Comcast, shed a net of 238 video subs while cablecos Time Warner Cable (NYSE:TWC) and Charter (Nasdaq:CHTR) combined to lose 225k video customers in 2Q11. Placing #2 in video, DirecTV (Nasdaq:DTV) put some distance between itself and fellow DBS provider DISH Network (Nasdaq:DISH) with 500k adds, only 26k of which however came in the United States. In the middle of the video top ten, AT&T and Verizon continued to improve penetration of their FTTx options, U-verse and FiOS, leading to moderate customer gains.

The top mover in any category was CenturyLink (NYSE:CTL) in wireline, as it closed its Qwest acquisition in 2Q11, netting it Qwest’s 8.6m connections. With over 15m total wireline connections, CenturyLink jumped to third place in the wireline top ten behind AT&T (41.2m connections) and Verizon (25m connections).


2Q11 Earnings: Industry Leaders Comcast and DirecTV Report Strong Growth

Providers Turn to Mobile and Online Video Services

After hearing the news that cable giant Comcast (Nasdaq:CMCSA) called satellite leader DirecTV (Nasdaq:DTV) a “serial false advertiser” and plans to sue the DBS provider over its Sunday NFL ticket advertising, I decided to review the 2Q11 earnings of the feuding companies together.

Both providers reported stronger than expected revenues and profits for 2Q11. DirecTV’s revenue was up 13% YoY, while its 2Q11 profit of $701m jumped 30%. Comcast on the other hand saw pro forma revenue grow 9% and profits rise 16% YoY. Despite solid earnings growth, both struggled to add and retain television subs, suggesting that discounted prices for FiOS and U-Verse may have adversely impacted both providers.

Comcast and other cablecos have been losing video subs to Dish and DirecTV for years, but in 2Q11 satellite gains in the U.S. dropped sharply. While DirecTV added nearly 500k subs in 2Q11, only 26k of the net adds were in the U.S., as Venezuela and Brazil accounted for the lion’s share of its growth. By comparison, it added 184k U.S. customers in 1Q11 and 100k in 2Q10. A growing churn rate is of increasing concern for DirecTV ceo Michael White.

“In response (to rising churn), we've significantly stepped up our efforts to closely manage churn in a more targeted fashion. For instance, we further refined our segmentation analysis to identify those customers that are most likely to churn as they get close to the end of their two-year contract, and matched them up with our best agents and best offers. We also increased our upgrade and retention spending for higher quality subscribers.”  

Essentially, DirecTV plans to spend more to retain customers, which will translate into compressed operating margins. Its margins from U.S. operations dropped in 2Q11 and look for that trend to continue as its retention efforts increase. 

DirecTV’s top line growth could also suffer over the next few periods, thanks to its free NFL Sunday ticket promotion which Comcast claims is laden with potential fees and penalties. DirecTV has historically charged a monthly fee for its NFL package, but decided to drop the fee for the 2011 season—expecting an influx of new subs in return. Subscriptions however remained relatively flat, and it will lose the NFL fees from existing customers.

While Latin America bolstered DirecTV’s 2Q11 results, Comcast benefited from a strong performance from its NBC Universal segment that it acquired in 1Q11. On a pro forma basis, revenue jumped 17.1% YoY for the division in 2Q11—as broadcast and filmed entertainment revenue rose around 20%. It was the same old story for its cable communications segments—television revenue was flat as video subs were down, high-speed Internet revenue was up 10% on improved broadband penetration, and its business services delivered impressive 45% YoY growth.

In order to retain and attract television customers, both Comcast and DirecTV are expanding their mobile and online video services. Comcast is much further along in the process, offering video on demand with XFINITY over the Internet and through its XFINITY mobile aps for smartphones and tablets. DirecTV however appears poised to ramp up its mobile video strategy, hinting of its interest in Hulu (partially owned by Comcast) on its 2Q11 earnings call. The main question however remains: how much incremental revenue can be earned through mobile and Internet video?

“I think suffice it to say, we have consistently said that we want to make sure that we can make DIRECTV available anytime and anywhere our customers want it. The Hulu software has some nice aspects to it, but you also have to kind of form a judgment about its business model and what you think that business model can generate,” said White.

Overall, 2Q11 on paper was a solid quarter for both Comcast and DirecTV, but the areas of their 2Q11 growth are not sustainable. DirecTV admitted its Latin America business was volatile and that 50% growth cannot be expected in the future, while Comcast said with regards to NBC Universal, “there'll be some hits and misses and more volatility.”

Where Comcast however can benefit from its diversified service offerings and its high margin and growing business segment, DirecTV is reliant on television subs for growth. Unable to offer its own triple plays, programming is where DirecTV has won customers in the past. Adding mobility to its programming appears to be what DirecTV believes will grow its business in the future.