How Comcast Can Benefit From Its Mobile Service

Comcast (NASDAQ:CMCSA) recently announced the launch of its wireless service called “Xfinity Mobile” which will leverage Verizon’s wireless network and will be available to Comcast’s home internet customers. Offering mobile services as part of a bundle including broadband and Pay-TV could allow Comcast to retain and grow its existing subscriber base in the face of significant competition and cord-cutting. The service will leverage the company’s existing Wi-Fi network – along with Verizon’s wireless network – and customer base, and therefore should not involve significant upfront investment. Through the launch of the product, Comcast is not necessarily looking to compete with existing telecom providers, rather just trying to provide its existing customers with a more convenient service. We believe Xfinity Mobile has the potential to become a long term revenue driver for Comcast, as it should not involve significant capital expenditures and can leverage the company’s nearly 30 million strong base of broadband users.

Leveraging Existing Infrastructure

Comcast is not currently offering any incentives for customers to switch over to its mobile services, and is limiting this service to consumers who already have, or are ready to subscribe to, its broadband service. This limits the growth potential of the mobile service, but leverages its existing infrastructure effectively. The company’s management is viewing this service as a “relationship building” tool that should effectively reduce churn going forward while also generating some incremental revenues. We estimate that Comcast has a nearly 24% market share in the U.S. Broadband market, and we expect this number to remain stable going forward.

Meanwhile, we expect the company’s average broadband subscriber fees to increase steadily from around $55 this year to nearly $60 by the end of our forecast period.

If the company is able to bundle its mobile and broadband services and convert a significant number of its existing broadband subscribers into bundled users, it can generate higher subscription revenues from existing customers. The cost of the bundle will not be significantly higher for the company since it leverages its existing infrastructure and advertising budget. A faster increase in broadband subscription rates can lead to an upside to our price estimate for Comcast’s stock.

We believe Comcast’s move to offer mobile services to its broadband customers is a smart strategy. It can generate revenues fairly quickly without high capex requirements, and could become a growth driver for the company in the long term.

See our complete analysis for Comcast

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