Marketing

Roberts: Cable’s Winning the Fight

3/09/2007 7:00 PM Eastern

The cable industry is winning the battle against phone companies encroaching on the video market, said Comcast CEO Brian Roberts. Exhibit A: More than half of Comcast’s new high-speed Internet customers defected from less-expensive, telco-delivered digital subscriber lines.

Roberts, speaking at the Bear Stearns Media Conference in Palm Beach, Fla., last Tuesday, said cable’s higher Internet speeds provide a marketing advantage, despite its higher price.

In the fourth quarter, 52% of Comcast’s net high-speed Internet customer additions came from DSL, according to the CEO. And that’s even though cable-modem service costs $40 to $50 per month unbundled, and DSL service can be had for as low as $19 per month.

VIDEO NEEDS SPEED

“DSL is the new dial-up,” Roberts said — an underpowered service that consumers are willing to upgrade from despite the cost.

The need for a speed upgrade comes as video downloads are rising. Roberts said 2% to 4% of traffic on Comcast’s high-speed Internet service last month came from video downloads from sites like YouTube.

Later, Roberts downplayed concerns that cable operators will need another round of plant upgrades — at additional expense — to provide even faster download speeds. With switched video technology, cable can recapture as much as 80 analog channels, bandwidth that could be partly used to provide faster Internet service.

DOCSIS 3.0 data technology allows cable operators to deliver speeds as high as 100 Mbps using only four channels, Roberts said. Once cable transmissions are 100% digital, the bandwidth boosts are almost unlimited.

“We’re now up to 50% digital, we will get to 80% digital and someday we will have 100% digital and then we reclaim some, if not all, of those 80 analog channels,” Roberts said. “If we, therefore, needed 1 billion bits per second, bidirectional into your house, we could do that.”

Roberts said he sees diminished competitive concerns about consumer demand for video delivered to wireless devices. A year ago, wireless video was all the rage — and a perceived disadvantage for cable operators competing against telephone companies that own wireless networks.

In fact, wireless video has proven a bother for phone companies because it clogs up wireless networks and keeps providers from reliably performing the main task of a wireless network — completing phone calls, he said.

“I think we’re further from having to worry about a pure attack on your cable business,” Roberts said.

But — again trying to persuade the world that cable can handle any contingency — Roberts said if a more-robust wireless network is needed, Comcast can tap into 20 Megahertz of wireless spectrum in some of the biggest U.S. markets after its participation in Federal Communications Commission spectrum auctions last year.

Comcast joined forces with Sprint Nextel, Time Warner Cable, Cox Communications and Advance/Newhouse Communications to form SpectrumCo last year to participate in the FCC’s advanced wireless-services auction.

SpectrumCo won 137 licenses in large markets such as New York, Los Angeles, Chicago and Washington, D.C., for about $2.37 billion. And it has about 10 years to actually start using the spectrum it acquired.

No plans for it have been disclosed so far.

Roberts also restated Comcast’s position that it won’t pay cash for the right to retransmit local signals from broadcast television stations.

He said Comcast has made about 600 retransmission-consent deals, and another few should be done shortly, apparently alluding to negotiations with Sinclair Broadcast Group, which concluded Friday.

The deal, which represents about 15% of Comcast’s total footprint, or about 3.4 million subscribers, included no cash. (See story, page 8).

While Sinclair has had success extracting cash from other cable and satellite operators — it said that it received about $25.4 million in retrans cash in 2006 and expects that to nearly double to $48 million in 2007 — Roberts has said that Comcast won’t pay straight cash merely to keep broadcast stations on its cable systems.

RETRANS DEALS LOCKED

“We will be happy to sit down with reasonable folks and talk about some sort of cooperative deal, where comparable value gets exchanged or approximately comparable value gets exchanged,” he said. “We are not interested and will not pay cash for retrans if that’s all you do.”

Most of Comcast’s biggest retransmission-consent deals — mainly with network-owned stations — don’t come up for renewal for five to seven years.

“Of the four largest retrans deals we have, the earliest expiration is almost five years from now, but most go beyond six or seven years,” Roberts said. “This is not a conversation we’re having anytime soon. With the pure independent smaller folks, we believe we’re going to be able to have something other than just pay and get retrans. We’re going to help market each other’s businesses; it’s going to be a win-win outcome.

“It will not require us to raise consumers’ rates or charge the consumer for free TV. That line is drawn, that’s not changing. I don’t anticipate that changing anytime soon.”

Comcast’s share price closed at 26.03 on March 8, up from $25.40 on March 2.

September