Here’s How Comcast Can Benefit From Launch Of A Wireless Service

At a recent Goldman Sachs Investor Conference, Comcast‘s (NASDAQ:CMCSA) Chief Executive Brain Roberts mentioned that company is planning to launch a wireless service by mid-2017. In addition to opening a new line of business, this service will also enable the company to better retain its cable customers. As an increasing number of consumers move away from traditional cable networks towards alternative streaming media, Comcast’s strategy to offer bundled services of broadband, cable and potentially wireless should foster subscriber retention. According to our estimates, cable TV accounts for nearly 30% of Comcast’s valuation. Hence, the company is looking at innovative ways such as the recent partnership with Netflix to retain cable customers. While the wireless market is fiercely competitive, Comcast has the advantage of its deal with Verizon through which it can offer wireless services without any significant investment,using the telecom carrier’s network. Whether this new service will be able to create another profit stream for Comcast remains to be seen.  However, a bigger bundle of services, even at discounted rates, can enable the company to retain its existing subscribers, which is a critical driver for future growth.

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Customer Satisfaction And Loyalty

Comcast believes that, by offering wireless services to its existing customers, the company can reduce churn and improve customer loyalty. Comcast already offers broadband services and bundling broadband, wireless and cable services can provide the company with a competitive edge, since this bundle cannot be matched by most other wireless carriers. While we expect a moderate increase in Comcast’s broadband market share over our forecast period, we forecast its cable market share to decline in the next few years.

A bundled service offered at a discount can potentially help Comcast to retain its existing broadband and cable subscribers and attract more subscribers who seek a one-stop shop for their broadband, wireless and cable requirements at cheaper rates.  A higher market share in both cable and broadband segments through this advantage can lead to an upside to our price estimate.

New Revenue Stream

The U.S. wireless market is dominated by four national players that are locked in a price war to increase market share. However, Comcast has two distinct advantages in this space: 1) It can offer discounted bundled services that can attract its existing broadband and Pay TV subscribers to its wireless offering; and,   2) The company can offer a more competitive pricing since it does not have to invest heavily in network infrastructure due to its deal with Verizon.  The company can further reduce infrastructure cost by routing calls through its existing Wi-Fi networks wherever possible. However, whether consumers will be willing to make the shift to Comcast’s wireless services depends on its execution ability and pricing advantage. We believe this segment can become a growth driver for the company over the longer term, if it is able to offer the bundled services at competitive rates.

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