Cable Technology Feature Article
28 Percent of Comcast Cable Revenue is 'Dumb Pipe,' Will Grow
By Gary Kim, Contributing Editor
In the long run, cable TV operators will, for the most part, become simple ISPs. “The future value of the cable MSO home connection will be almost wholly tied to data bandwidth,” according to analysts at Fitch Ratings.
That might terrify most service providers, as it suggests cable companies, most telcos and others primarily will be suppliers of “dumb pipe” Internet access. But the prediction is a simple extrapolation from current trends.
Cable operator revenue and earnings growth has been “increasingly reliant” on high-speed data products, Fitch Ratings says. At the same time, cable operators continue to lose video customers, and video service margins are compressing as programming costs increase, which cannot be fully passed through to customers, Fitch Ratings maintains.
“Cable operators are now unable to pass through the full extent of programming price increases to subscribers due to competition from other operators along with substitution technology,” Fitch analysts say.
That likely will lead to an increased reliance on usage-based data services to support video delivery, whether or not those services are owned by the cable operator.
Comcast’s (News - Alert) first quarter 2013 earnings report sheds some light on the value of “dumb pipe” revenues earned by Comcast's cable segment. In its cable segment, Comcast booked revenue of $10.22 billion.
Assume that voice, video entertainment, advertising and all other revenue is a “service,” not dumb pipe Internet access.
Of that amount, some $5.1 billion came from video entertainment. Comcast earned $900 million from consumer voice, $940 million in advertising and other revenue, and about $2.5 billion in consumer Internet access revenue.
Comcast additionally earned $741 million from business services, presumably a mix of high speed access and voice services. For the sake of argument, assume half of that revenue is high speed access, half hosted voice. So assume Comcast can attribute $370 million in the quarter as Internet access revenue.
That implies about $7.3 billion in smart pipe or service or application revenue. That also implies
dumb pipe revenue of about $2.9 billion. So dumb pipe directly represents 28 percent of revenue.
Edited by Alisen Downey