Comcast (NASDAQ:CMCSA) recently announced the availability of its high-speed residential broadband service under the name Extreme 105. [1] While we recognize upside to Comcast’s broadband revenues from introducing the new service, we’re not so sure Extreme 105 will gain rapid adoption among customers. Comcast competes with companies like Dish Network (NASDAQ:DISH), DirecTV (NASDAQ:DTV), Time Warner Cable (NYSE:TWC), AT&T (NYSE:T) and Verizon (NYSE:VZ) in pay-TV and broadband business.
Our price estimate for Comcast stands at $29.57, a premium of roughly 20% to market price.
Broadband is critical to Comcast. In fact we estimate that it is actually a more significant value contributor than the company’s pay-TV business. Broadband, by our estimates, constitutes about 31% of Comcast’s stock value. Comcast has been gaining subscribers in this segment while recording subscriber losses in the pay-TV business. So clearly Comcast is aiming to maximize the value from broadband.
Brief Look at Extreme 105
The Extreme 105 service will deliver broadband speeds of 105 Mbps to about 40 million homes initially (if customers upgrade of course). These households will be spread across cities including San Francisco, Seattle, Denver, Chicago, Boston, Philadelphia, Washington, D.C., and Miami. [2]
A key distinction to make it that the service is directed towards residential customers, not businesses. According to the company, the speed offered by Extreme 105 is much faster than what the T-1 lines can deliver (which most businesses use). [2] The service will be available for an introductory monthly fee of $105, as part of a bundled package.
Will 250 GB Cap Block Upgrades?
Faster broadband speeds typically stimulate greater data consumption. So if customers upgrade to the fast Extreme 105 broadband service, will they face issues with the 250 GB cap that Comcast has set? Comcast has stated that data usage for more than 99% of its customers tends to stay within the 250 GB limit and that the median data usage is around 4 to 6 GB per month. [3] So it seems that Comcast’s customers still fall well within the data lip, and the 250 GB cap might not really be a problem.
But there is still some portion of customers that come very close to the cap. Accordingly, it will probably be these high data usage customers that are more inclined to upgrade (assuming they’re not deterred by the price). So if these customers are already close to the cap, by upgrading they’d effectively be paying more for the same amount of data – the only difference being that they’d reach the cap much quicker.
So will these customers really pay up for the new service? And if they do, will they stick with the service or ultimately cancel? We’ll have to wait and see.
Nevertheless, there is potential upside to Comcast’s revenue from average broadband fees if enough customers upgrade. You can drag the trend line in the interactive chart above to see how higher broadband fees could affect Comcast’s stock value.
See our complete analysis for Comcast stock here
- Extreme 105: Powering Digital Families, Comcast, April 14 2011 [↩]
- Comcast bumps up speed for home-Internet users, USA Today, Apr 13 2011 [↩] [↩]
- Frequently Asked Questions about Excessive Use, Comcast’s Website [↩]
