Cast Aside?: Why Comcast and Other Cablecos Are Struggling

"Verizon FiOS could hurt Comcast big-time because it offers both good-quality broadcast video at a reasonable cost and higher-speed Internet than the cablecos can match," warns Nolle. "And as telcos get better at video, Comcast can push voice. But voice pricing is falling year over year, and they can expect the FCC to step in faster here than anywhere else. In the end, I think Comcast is afraid that they’ll be forced into a big plant modernization to counter competition, and that they’ll see their stock tank as a result."

Cablecos know they can compete with Verizon on the downstream side with wideband and DOCSIS 3.0, but how do they counter symmetric bandwidth, which they can’t really offer, asks Heynen. DOCSIS 3.0 promises 160mbps downstream, but only 120mbps upstream.

The other issues cablecos must address include delivering more high-definition and pay-per-view channels, getting key technology supporting interactivity into set-top boxes, implementing new applications as voice business flattens, and figuring out a wireless strategy, Heynen says. The common thread: A more robust, enhanced and expanded infrastructure.

Comcast CFO Michael Angelakis told an audience at a UBS Warburg conference on Dec. 5 that Comcast had revised its capex spending up $300 million, from the $5.7 billion mark it set in February 2007, to $6 billion. Nonetheless, the substantial capex increase begged two important questions. The first is what the money would be used for. The second is whether the extra spending could be considered good news or bad news for Comcast.

To the first question, Angelakis said the $300 million covered a number of things, including advanced STBs, high-definition DVRs, some churn, and $40 million to $45 million on a cable company it had acquired earlier in 2007 and in a cable partnership it had dissolved. The Comcast CFO also mentioned spending on "customer enhancements and network improvements that are more competitive in nature." Angelakis did not elaborate on the last point.

As for the second question, CIMI’s Nolle comments: "It’s really not so much about what the capital budget is or what the overruns are, but rather what’s causing it. If it were on DOCSIS 3.0, which is not finished yet, I’d say it’s a poor stepchild of things to come. But with most going to STBs and HD DVRs, they’re upgrading customers to higher-revenue services, which is a far more immediate financial plus."

And while Wall Street reacted to the initial guidance revision by slamming Comcast’s stock, Nolle believes that upping the capex spending, largely for in-home devices, didn’t warrant the extreme action on the stock front.

"Spending on STBs and HD DVRs does not represent a significant change in behavior for Comcast, nor is it indicative of a sizable plant modernization," stresses Nolle, noting that the spending was for 2007, a pre-DOCSIS 3.0 period.

Comments from Comcast’s CFO seem to track closely with those of Nolle.

"We will spend a significant amount of money this year on HD DVRs and actually spend significant money above our original plan on HD DVRs," Angelakis said last year. "We get a really good return on that deployment, and we get a little bit of less churn. So from my perspective, from capital allocation, I’m very bullish on that particular component."

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