Comcast (NASDAQ:CMCSA) Chief Financial Officer Jason Armstrong said the company’s planned separation of its connectivity and technology operations from NBCUniversal and Sky reflects diverging competitive conditions, investment needs and strategic priorities across the businesses.
Speaking at the Goldman Sachs Communacopia and Technology Conference, Armstrong said Comcast had spent more than a decade building two strong businesses, but concluded that the businesses could be better positioned as separate companies. He said Comcast first evaluated whether it could establish leadership teams and investment-grade balance sheets for each entity.
Broadband Competition and Customer Experience
Armstrong described the broadband market as highly competitive, citing pressure from fixed wireless, fiber and satellite services. Still, he said Comcast believes wired connections will remain the preferred long-term technology because of their speed, latency and upgrade economics.
Fixed wireless providers continue to add roughly 1 million subscribers per quarter collectively, Armstrong said, though he argued that wireless carriers ultimately want wired connections for home traffic. Satellite broadband has not yet had a meaningful effect on Comcast’s results, he said, although the company is preparing for increased competition, particularly in rural and deep suburban markets.
Fiber remains Comcast’s primary long-term competitive concern. Armstrong said fiber overbuild activity in Comcast markets has accelerated to approximately 4% to 5% annually from a historical range of 2% to 3%.
He also said Comcast has seen what it considers “irrational” fiber pricing, including standalone gigabit offerings in the $30 to $40 range. Armstrong said those prices may not support attractive returns when providers face substantial costs to deploy fiber.
“We think we’ve been incredibly rational in our approach to the market,” Armstrong said.
Comcast has revised its broadband strategy around network quality, product offerings and customer experience. Armstrong said the company is pursuing multi-gig symmetrical speeds through its network upgrades and believes it can match fiber capabilities while using a smaller portion of its network capacity for data.
The company has also introduced or expanded offers intended to deepen customer relationships, including free wireless lines for a limited period and a home-security product called Shield. Armstrong said Comcast is working to simplify pricing and packaging and improve call-center routing, self-service tools and agent capabilities through internal investments and external technology partners.
He said those investments have created temporary pressure on EBITDA and average revenue per user, but Comcast expects modest sequential improvement in EBITDA, broadband ARPU and convergence ARPU beginning in the third quarter.
Wireless Growth Opportunity
Armstrong characterized wireless as Comcast’s largest addressable growth opportunity. The company sells wireless primarily to its existing broadband customers, which he said creates customer-acquisition and network-offload advantages relative to traditional wireless carriers.
Comcast serves 30 million customer relationships across 65 million households passed, Armstrong said, while wireless penetration stands at about 7% of its homes.
The company is using free-line promotions to raise awareness and encourage adoption. More than 70% of customers receiving free lines have converted to paying lines, Armstrong said. Comcast has also increased its focus on premium unlimited wireless plans, with those plans accounting for 40% of incoming wireless subscribers, up from 30% in the prior quarter.
“We’re fully playing in postpaid at this point,” Armstrong said, citing data allowances, handset availability and international roaming offerings.
Business Services, Costs and Parks
Armstrong said Comcast Business has grown from scratch into a $10 billion business that generates nearly $6 billion in EBITDA. He said the company continues to grow its small-business operations and sees the larger enterprise market as a major opportunity.
Acquisitions including Nitel and Masergy added capabilities such as carrier aggregation and SD-WAN, Armstrong said. Comcast Business is growing at a high-single-digit rate, he said, and has secured 12 of the 15 largest quick-service restaurant companies as customers.
On costs, Armstrong said Comcast has begun what he called its largest cost transformation, aimed at eliminating management layers, accelerating technology changes and freeing resources for growth investments. He said the company expects to provide additional details in its third-quarter update.
In theme parks, Armstrong said Epic Universe performed strongly after its launch and lifted results at Comcast’s Orlando parks. However, the company has seen continued softness in Orlando following strong demand associated with the new park, while international operations have faced pressure from reduced Chinese visitation to Japan and weaker Chinese consumer conditions in Beijing.
Despite those near-term headwinds, Armstrong said Comcast remains bullish on parks over the long term, citing improvement in Orlando attendance, per-capita spending, financial performance and guest satisfaction compared with two years earlier.
Regarding capital allocation after the separation, Armstrong said Comcast’s priorities remain reinvesting in its businesses, maintaining strong balance sheets and returning capital to shareholders. He noted that Comcast has historically maintained leverage in the low-2-times range, reduced its share count by 20% over roughly five to six years and maintained a strong dividend policy.
About Comcast (NASDAQ:CMCSA)
Comcast Corporation (NASDAQ:CMCSA) is a global media and technology company that provides broadband, wireless, video, voice and related services to residential and business customers. Through its connectivity businesses, Comcast offers internet access, mobile service, pay television, telephone service, and home security and automation products, primarily under the Xfinity brand in the United States.
Comcast also operates a broad portfolio of entertainment and media businesses. NBCUniversal includes the NBC and Telemundo broadcast networks, cable networks, film and television studios, the Peacock streaming service, and a collection of theme parks.
