Comcast (NASDA:CMCSA) is offering free texting and the ability to receive voicemail through email to its Xfinity Voice subscribers who subscribe to its unlimited plans.  Xfinity Voice is Comcast’s digital phone service that uses its fiber-optic network. Xfinity Voice users will be able to use an app that’s designed for Apple’s (NASDAQ:AAPL) iOS and Google’s (NASDAQ:GOOG) Android operating systems to send and receive free texts using their home phone number. This move is to essentially speed up voice subscriber gains, while the additional costs incurred are likely to be insignificant.
Digital Phone Just Over 10% Of Comcast’s Stock
We estimate that the Digital Phone service constitutes a little over 10% of Comcast’s estimated value. This is primarily due to the fewer number of subscribers and lower revenue per subscriber compared to its other core businesses such as broadband and pay-TV. Although Comcast has been gaining voice subscribers, the pace has been relatively slow compared to the total market growth. Because of this, the company has lost some market share – from an estimated 33% in 2008 to 27% in 2011.
Texting Is Low Cost, Idea Is To Speed Up Subscriber Additions
Offering consumers unlimited texting is likely to have a very limited impact on Comcast’s costs. It costs carriers roughly 0.3 cents for processing one SMS, according to a 2010 report.  Assuming that Comcast will face something similar, we conclude that even if Xfinity Voice subscribers send, on average, 10 texts per day using this new app, Comcast’s costs will increase in a way that will lead to just 3% downside to our price estimate. This assumption excludes the possibility that Comcast may gain additional subscribers as a result of this move. If that happens, there would be a net upside as the extra costs should be offset by the extra cash profits generated from incremental subscriber gains.
Our price estimate for Comcast stands at $27, implying a discount of a little over 10% to the market price.
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