Comcast: AT&T now bigger threat than Verizon

Despite a shaky economy, Comcast, the largest cable company in the United States, reported positive third-quarter earnings today, including net income growth of 38% and broadband subscriber growth surpassing that of AT&T and Verizon Communications combined. Yet, along with increasing access-line loss and a changing video landscape, the third quarter also saw a shift in the competitive landscape for Comcast. Whereas last year, Verizon was its biggest competitive threat, AT&T has become the more formidable competitor, said Stephen Burke, chief operating officer and executive vice president of Comcast Cable.

“We are actually seeing more competition from AT&T than Verizon right now, and that was the exact opposite a year ago,” Burke said on today’s earnings conference call. “We monitor it very, very carefully. AT&T has so much broader a footprint that we actually think they are having a greater effect on our business than Verizon. In both AT&T and Verizon’s case, we obviously believe that we are taking more phone and data customers from them than they are taking video from us, but clearly we’ve seen a shift of late where AT&T is proving to be a more formidable competitor than they were.”

The increased competition is not much of a surprise, CEO Brian Roberts added, as AT&T had improved its high-definition offerings and expanded its footprint. AT&T has always been aggressive with its marketing, he said, but the footprint is the biggest driver of the competition. 

Comcast’s financial position has never been stronger, Roberts said, and the losses it has incurred were to be expected. On the landline front, AT&T and Verizon reported losing 10.5% and 12% of their primary phone lines, respectively, totaling more than 2 million total lines lost. Comparatively, Comcast gained 483,000 landline subscribers. Bernstein Research Senior Analyst Craig Moffett said that Comcast’s voice results, which were better than estimated, were aided by the telcos’ poor showing. Cable share gain, not simple cord-cutting, still appears to account for the majority of telco line losses, Moffett said. Roberts also blamed the economy for the overall wireline loss.

“There is no question wireless substitution is substantial, and it’s increasing,” Roberts said. “It would stand to reason that it would increase as people look at all their bills and try to respond to the changing economy. One of the interesting things about our business, and maybe it’s because the majority of our customers are in packages, is that we are seeing phone churn decline fairly markedly year over year.”

Video-only subscribers make up 43% of Comcast’s customers, making them the most vulnerable to churn, according to Comcast CFO Michael Angelakis. These subscribers are disproportionately lost, however, which Roberts added hurts Comcast less financially. Roberts said that Comcast’s phone product represents the best value out of all three Comcast products – video, broadband and wireline – because it is clearly cheaper than any alternative, especially as part of a package.

Comcast also outdid the telcos in new broadband connects, adding 382,000 high-speed Internet subscribers compared to AT&T’s 148,000 subs and Verizon’s 225,000 new subs.  

On the wireless front, Comcast didn’t acknowledge fellow cableco Cox Communication’s recently announced plans to launch a wireless service over its own 3G wireless network in 2009, but Angelakis did outline his expectations for the new Clearwire. Comcast is set to make a $1-billion investment in Clearwire’s new WiMax venture, which will merge with Sprint’s WiMax operations. Comcast, which owns 700 MHz and Advanced Wireless Services licenses, is focused on closing the deal as quickly as possible, Angelakis said.

“We are very focused on our 3G agreement, which we negotiated with Sprint, and very focused on our 4G agreement, which we negotiated with Clearwire, or “New Clearwire,” which we think are both strategically important to us,” Angelakis said. “We are also focused on post-closing, what that looks like.”