While Comcast (NASDAQ:CMCSA) has been witnessing subscriber losses in its pay-TV business, broadband is fueling growth for the cable giant. (See – Pay-TV Subscriber Churn) According to our estimates, broadband contributes close to 25% to Comcast’s value. The company is building a massive Wi-Fi network spanning the entire country which should boost its market share. Competition has been rising with companies such as AT&T (NYSE:T) and Time Warner Cable (NYSE:TWC) expanding their broadband businesses while Google (NASDAQ:GOOG) is offering 1 Gbps Internet service for $70 in a few cities. Nevertheless, Comcast has been able to maintain its leadership and commands more than 20% market share in the U.S. on its double and triple play offerings that include pay-TV and voice services with additional features such as X1 and Xfinity. (See - Comcast’s On-Demand Services Deliver Growth Amid A Saturated Pay-TV Market)
Domestic Broadband Market
The U.S. broadband market is booming rapidly driven by a stronger economy and growing need for speed and connectivity. According to a report from the White House, 94% of U.S. homes now have access to broadband and more than two-thirds of American households have Internet service compared to 4.4% in 2000.  However, given that only 72% of Americans use broadband at home, there is still much room left for broadband to penetrate, and this will benefit the cable industry in particular as it accounts for 58% of the U.S. broadband market. Following is the breakdown of the U.S. broadband market prepared by Leichtman Research Group.
Moreover, the use of smartphones and other web-enabled devices in the U.S. is on the rise. Around 56% of Americans currently own a smartphone, and this figure may increase to 70% by 2016.  There are now 5.7 connected devices per U.S. Internet household and the increased penetration of smartphones will require more data to be served by broadband and mobile operators. 
Even Bigger Wi-Fi Network
Comcast has the largest Wi-Fi hotspot network in the U.S. currently and it plans to expand it further. The company stated that it has started shipping to its customers a new version of its wireless gateway of Cisco (NASDAQ:CSCO) that transmits two signals with separate SSIDs, each functioning as a separate network. While the family that owns the router can access the first network, the other remains open to any Comcast broadband customer.  If Comcast is able to install these routers to all of its 20 million subscribers, creating 20 million hotspots in the U.S., it will definitely be a massive Wi-Fi network. For data-hungry customers, it would make more sense to be on a larger Wi-Fi network such as Comcast.
Subscriber Growth Continues
Comcast has seen robust broadband subscriber growth in the past few years. The company’s broadband business generated more than $10 billion in revenues in 2012. The number of broadband subscribers rose from 17 million in 2010 to 20 million as of June 30, 2013.  Given the rising demand for broadband and Comcast’s market leadership position, we estimate close to 28 million broadband subscribers by the end of our forecast period. However, if Comcast manages to tap 30 million customers, there will be upside of close to 5% to our price estimate.Notes:
- FOUR YEARS OF BROADBAND GROWTH, The White House, June 2013 [↩] [↩]
- INTERNET CONNECTED DEVICES SURPASS HALF A BILLION IN U.S. HOMES, ACCORDING TO THE NPD GROUP, Connected Intelligence, Mar 18, 2013 [↩]
- Comcast Is Turning Homes Into Public Wi-Fi Hotspots, Business Week, Jun 11, 2013 [↩]
- Comcast’s SEC Filings [↩]