Comcast Corporation (CMCSA) Earnings Call Transcript & Summary

Okay. If everyone could please take their seats, we'll get going with our next speaker. Again, I'm John Hodulik, I'm the media and telecom analyst here at UBS. And we're very excited to have Dave Watson, the President and CEO of Comcast Cable with us today. Dave, thanks for being here.

Good to be with you, John.

Great. We've got 35 minutes for Q&A. I've got a bunch of questions I got to run through. We also have the app. If anyone wants to log in, ask a question, I can look at it here on the iPad and I can work it into the conversation.

So David, you could just -- obviously, at the end of the year, looking out into '25, can you talk about what are your biggest priorities for the Cable business at Comcast as we look out into the new year?

There's no question, John, our top priority is growing the connectivity business lines. The good news is we have 3 robust, great lines between broadband connectivity between the business services and mobile. And so broadband, just a couple of points on broadband. We have 63 million homes passed today. Adding to that, we're adding another -- we did 1 million this year in terms of new homes, and we'll add another, I think, closer to 1.2 million this upcoming year. So we continue to add to the homes passed. The key is that we are delivering 1 gig everywhere. And so as others are looking to add more, understand that competitively, but we're already there in terms of a great 1 gig product that we have today. And so we're all about gig, and it's a super important part of our business. And the other piece of it is not just having a robust homes passed addressable marketplace, it's how you define what a great product is. So for us, most certainly, it's having 1 gig, it's coverage, it's capacity, it's a latency. It's everything that goes into the applications that matter to consumers, whether it's streaming, whether it's gaming. And so for us, the network is literally built for streaming. It's literally built for those applications. And at 1 gig, we're ahead of the curve every where we're going. And as we're addressing competition, it's been a changing fluid marketplace. But we've seen fiber competition for over 20 years now gotten -- we understand it. When fiber launches, you go through a phase where there's a launch period that's difficult and then you settle, and you level off in terms of market share. And the way we see it, there's level market share after the market matures with fiber. And then the ARPU is no different between the fiber markets and nonfiber markets. So we are -- we feel very good about the long-range planning around broadband. Excited about that. Then you go to mobile, mobile, for us, we are the disruptor and the challenger in the mobile space in a much bigger addressable marketplace. The mobile market is $180 billion compared to the broadband being $70 billion. So $181 billion mobile marketplace as the challenger, that puts us in a unique position to leverage it, to go and combine it with broadband, to have it be a profitable line in and of itself. So we're taking share, and we continue to take share. And we've been doing that for a period of time. So we like our position in terms of mobile, and we've been -- and when you combine mobile with broadband, that product experience is different. For some, when you hear bundling, sometimes, what they are talking about is just discounting. For us, packaging is important, but for us, it's the experience that is as important, combining broadband and mobile. To give you a feature that we're very excited about, it's mobile WiFi boost. And that is when you take any of your devices and you bring it into our home. If you have our mobile device and you're using it within the home, it opens it up to as fast as the device can go up to 1 gig. So every application is boosted. So whether it's streaming, whether it's gaming, whatever the applications are that you want to do, that's mobile. And it happens -- it just automatically happens. You don't have to have an app. You don't have to -- it's just a seamless, easy experience. Those are the kinds of experiences that I think really matter. And then last but not least is business services, $60 billion addressable marketplace for us. We're expanding beyond our footprint with major accounts, large enterprise accounts. And we're adding more addressable footprint through what we call Ethernet over cable, which is taking our HFC plant and being able to do dedicated Internet. Telephone companies have been doing this for a long period of time. For a small business, medium business, that's exciting. We're going to be able to, in '25, go to an additional 3.5 million business passings with this dedicated Internet service with SLAs. And so we have lots of new products happening in business services that, along with relationship building, we're just as focused on selling mid-market enterprise revenue opportunity. So we're less than 20% penetrated. $60 billion, long way to go. We already got very close to equal share on SMB, and we aim to do the same thing in mid-market to enterprise. So we're excited about a very large overall connectivity growth area for us.

Fantastic. That's a great overview, and we'll dive into each of these components. Maybe first starting with competition in residential broadband. How would you characterize competition as -- sort of in the fourth quarter versus what you've been seeing previously?

Sure. Well, our competition remains competitively intense. That has not changed. It's been pretty consistent throughout the year. In particular, in the more price-conscious end of the marketplace, that is where we've seen a little bit more swirl around that segment. And it's remained this way right through the fourth quarter, this competitive intensity. Now the most important thing, though, is that the churn in -- on our really important traditional and premium segments, this is where we sell 500 megabits and above 1 gig services that we've had great success with. Those 2 segments, the churn has remained stable and near record lows. So that is very good news, and it's continued. Yes. When you replay the year though and if you look at the first half of the year, we lost just about $100,000 -- just under $100,000 per quarter for the first half of the year. You go into the third quarter and on the shoulders of the Olympic marketing surge, the students returning, the seasonal dynamics trending, fine, and then a competitor strike. Those 3 things saw improvements in performance in Q3. Q4, to your question, it resembles more of the first half of the year is what we're seeing. And one other thing to add on top of Q4, we had the 2 hurricanes. So the 2 hurricanes, we've been assessing it. We talked about this before as we did the Q3 unique positive elements. In Q4, the hurricanes, we think will impact to the tune of around 10,000 broadband losses, and there'll be a slight impact to ARPU. So when you add all these things together and you look at it going into Q4, the -- we could be looking at a broadband subscriber loss in Q4 of just over $100,000. And there'll be -- while we'll be in the range, the ARPU range that we've talked about at, 3% to 4%, we'll be at the lower end of that range. So that's how things remains competitively intense, but consistent with earlier parts of the year.

Got it. That's great color. On the ARPU piece, what's driving the ARPU piece? Is it a question of rebates that you're giving? Or is it like a onetime thing?

The -- well, part of it is the hurricane rebates. We're very -- we went all in and trying to be as positive and aggressive in getting out any help that was required. So that's certainly a piece of it. So some of it is just the swirl of lower-end activity that's just related to the timing of the ACP and marketplace dynamics there. But -- so our strategy -- the really important part has not changed. Build out great products, build out the network, focus on premium. And there are multiple drivers, long term, around ARPU. Not just rate increases, but a lot of things that we have that we continue to focus on, that will not change.

Right. Maybe a couple of things. Obviously, you mentioned the competition from fixed wireless. How do you -- and obviously, you started out saying gigabit speeds everywhere. Obviously, massive difference versus what fixed wire can provide. How do you drive that point home and sort of leverage those capabilities to prevent fixed wireless from taking too much share? I mean I guess -- and with that, I don't want to cut it off, but you talked about the mobile WiFi boost. Is that part of the equation? And is that a new product that you're just rolling out? Or is it...

It's relatively new. And the operational ease of accessing the product, using the product, that we've just improved on. And just, it's automatic when you go home and you open up the Apple device or the Android device, you can use it. So the core to the question on fixed wireless and really all competitors is we segment the marketplace and we start with a traditional premium. That's our focus, but we will compete fiercely for every segment. And while fixed wireless has had some success, I think, more -- on the more price-conscious into the marketplace, we will compete there, too. We have good products for that. NOW Internet, we just introduced that we have. We have other products, Internet essentials that we have that are available. But I think it's important as we look at the great broadband stands for great speed, coverage, capacity, reliability is an enormous issue. So when you have big moments, whether it's an NFL wild card game or an NFL big moment in December that you have, you want the best. We are built for streaming. And so how we really design capacity and coverage and combine the network with great gateway devices that amplify coverage and are just really super reliable, our WiFi is different. Not all WiFi is created equal. We have a different capability with WiFi and a better network performance, identifying issues and improving reliability. So we can beat in terms of speed with -- against fixed wireless. We can -- we're ahead of the curve and match any competitor, whether it's fiber. And so every segment, I think we have a really good position in terms of broadband. But I think the important long-term answer is the improved reliability, coverage capacity, latency, everything that we have to offer, that will never stop. We'll continue with the DOCSIS 4.0 rollout, that will continue to just get better. So it will be a hard one over time, I think, for the lower-end competitors to catch up to.

Got you. You mentioned the prepaid NOW product. How is that helping in terms of the low end? And what's been the sort of customer receptivity to that brand and that offer?

It's really early, and we did launch it as a separate product, separate brand. And so the game plan is to just make it more prominent for that segment. We will surgically do that as we talk about it, but we will go after those products a little bit more prominently. And the key to NOW Internet is just making it super easy. I think one thing that fixed wireless has done well is they've made it easy. It's a pretty simple product, and NOW Internet does the same. Without a contract, it's just super easy to get -- super easy to install and activate. It is digitally driven. So it's one of those simple easy products, I think, made for segment that appreciates those features.

Got you. And then turning to ARPU. You had some commentary about 4Q ARPU maybe at the lower end of the 3% to 4% range. It's been very steady. Actually, you started the year, I think, above the high end of that 3% to 4% range. Just talk about the mix of drivers that is keeping it in that 3% to 4% range. And do you expect those sort of underlying drivers to continue beyond '24?

Yes. We have been very consistent in terms of this performance, and the good news is there are multiple drivers behind it. If you had just one single driver, you wonder about that. But we have multiple really important significant drivers. We take a very cautious view of rate increases. So we're very steady on that, not to get ahead of ourselves in terms of consumer rate increases in broadband. I think the biggie is tier mix and the fact that we're so focused on segmentation. And we went through a period and have been going through a period where there's just a little bit more activity around the more price-conscious segments, and that will naturally cause a little bit more tier shift towards those segments. So that will level off over time. And as we continue to bolster the network and do more with multi-gig symmetrical, then that will just add to the focus that we've always had on the higher-end tier mix. But in addition, too, we have other products we call xFi Complete and a new product called Pro, where we combine the gateway, security, lots of things that we put on an easy bolt-on tier. Or in some cases, we package it with 1 gig. And all of this that we partner with mobile and these higher-end tiers comes with a free mobile line. So mobile is used to enhance the higher-end tiers, just helps tier mix. So -- and the way we manage the business, John, we look at acquisition, we look at base management, upgrade opportunities, and we look at retention. And more and more, I think, everyone is doing this, I think every operator with scale is beginning to truly leverage AI in a unique way that helps you identify the customers through the buying process in every single sales channel and then base opportunities, which I think we have between mobile, between all the other products that I mentioned, there's opportunities for speed upgrades. Base management gets easier with AI. And most certainly, retention is accelerated with AI. So all those things factor into our confidence of that 3% to 4% ARPU range.

Got it. And getting back to the capabilities of the network, you're largely done with the mid splits to the cable plan in your major markets in that point -- at this point. What capabilities will that provide? I mean I think -- does that would get you to the 1 gigabit or you were there I think previously and maybe this gets you beyond that in those markets?

Yes. The way -- it's pretty simple. The way we look at it is that mid split was the spectrum change that just made sure we can then provide a little bit more spectrum towards upstream. And so -- but we were doing 1 gig before. And so we have 1 gig everywhere. Been at it. Everyone's going to chase us, but we have it ubiquitously. So mid-split in connection with cloud capability, with AI capability, would -- that's the foundational layer. When you're building a home, you build the foundation first, and that's mid-split. It puts us in a position. We're 50% done right now, and vast majority will be done very soon thereafter into the next couple of years. And what follows is DOCSIS 4, and that leverages everything on the foundational layer. So once you're done -- really essentially, what you're finishing, what we've made such an accelerated move on already are really the hard part of the core and all the nodes, and now the DOCSIS 4.0 takes it through amps all the way to the home. And the way we've managed things is success based on devices. So we have a new great gateway that will do 1 gig symmetrical, and we'll be rolling that out, and then you're there. So we're going to -- you'll see a path in the next few years where on top of that foundational layer that we're really moving fast on to complete multi-gig symmetrical. So it's the most effective and efficient and fastest way at scale of any of our competitors. And so our job is to never stand still, keep improving it. But we have -- the reason -- and we can do it all within the CapEx ranges that we've been talking about because we did put a lot of it in the cloud. And by the way, we're doing tons of fiber, deep fiber, as we're building it out. That was all part of the architecture. So we have very deep fiber that has helped the nodes -- node sizes. And all those things combined puts us in a really good long-term position.

And at the same time you're making these upgrades to the network, you're also expanding the network. And talk about how you see that playing out. I guess, I think you said, was the 1.2 million I think it was...

For '25.

For '25. We're coming up for '25, I think.

And this -- we're looking at around 1 million-ish plus this year.

For '24, got you. How have the returns been on that business? Can you talk about sort of -- I don't know sort of customer receptivity, maybe penetration? Or just how is the return on that capital being spent?

Well, part of the decision-making process on our side is to be very measured, very disciplined in how we select markets in the first place. Vast majority of the markets that we've selected have not been subsidized. These are markets where we've extended our plant. We've already been there. It's a reasonable decision to go to dense areas where we haven't served yet and to go in there. We evaluate everything, competition, the density levels, the markets. But when we go, we go. We go with everything we got. We go with mobile. We go with business services. We go with fiber. And it's been very well received. When we come in and complete it, then we're seeing good healthy penetration levels within the first year into the second year. Every design that we've had, every forecast that we've had, we've been really pleased with in terms of penetration and yield. And so we'll be opportunistic going forward as we look at future subsidy programs. But we feel the range that we've been talking about, that 1.25, is doable. Even with some of the changing nature perhaps of some of the BEAD programs, there's been already a lot of state dollars that have been handed out, we'll participate where it makes sense. And if the rules are favorable, we'll be there. If they're not, then we won't. But it's a very disciplined, measured calculation on returns. And that's how we've looked at it. So we like our progress and the penetration levels. We go at it pretty hard when we launch.

Got you. You mentioned wireless a number of times. What is the wireless sort of service that you're selling? How is that -- what has that done for your business? Is it helping you on in terms of new connects? Or obviously, churn is very low, but I think it wasn't very low even before you had wireless. Just can you talk about how it differentiates your existing products?

Wireless checks a lot of boxes for us, and it is profitable in and of itself. I think teammate Jason Armstrong mentioned a while ago that it's -- they are 3 years running, that it's been profitable. So we've had really consistent performance around the wireless business. But the major design of wireless, why we're so excited, is just how large this addressable marketplace is, $181 billion. And it happened at the -- going back a bit at the same time the country lost the fourth carrier and the cable industry stepped right in. So we are the challenger. We are the disruptor in terms of core service pricing. We're very competitive on that. Well, I think we have used wireless as a vehicle to partner with broadband and help the value proposition there. But beyond that, it really, for us, has been a helpful device to open up consideration. Cable, again, going into retail stores, it was not necessarily -- again, people would wake up in the morning and say, "I'm going into the cable store." For wireless, they are, and wireless is a consideration. So whether it's demand generation, whether it's channels and optimizing digital byflow, all those things, wireless is a great way to stimulate consideration. So that's a piece of it, and it's a wonderful upgrade opportunity for the base. We sell wireless with broadband. It does help churn. It does help the base and revenue. And it's a great long-term opportunity for us with the 7.5 million lines and growing. It's a great partner within the business services portfolio, really just getting going with that mostly for small business. And we're excited about that, too. So we are the disruptor. We're the challenger, a very large opportunity and for years to come.

One question we get a lot is the potential need down the road to own your own sort of licensed spectrum network. And actually, you guys, I think you have an agreement to potentially sell some of your -- or your 600 megahertz spectrum to T-Mobile, which sort of goes against that if you act on that. But just any sort of higher level thoughts on maybe the MVNO agreement? I have a feeling what you're going to say about your partnership with Verizon. Or versus building out your own network and accumulating spectrum and building out infrastructure.

We have liked -- really liked our position for a very long time. The capital-light model, when you have the kind of deal that we have, and yes, it's a win-win.

Yes.

It's a win-win. But it is in this case, in that we're in the business flow now. We have years of success. I think people in the earliest stages were wondering, I get that. Way back then, will cable have success, will Charter or Comcast have success doing what they're doing. We have. We're now in the flow. So I think that the Verizon team would say we like their business, and it's important to be in their revenue stream. And that's really important to be in the revenue stream. So we like that position. But most importantly, we think that that's a long-term good strategy to have really good economics to be able to use that. And the way we go to market is focusing on core service. We're opportunistic on the device side. We have a good trade-in program, and we don't go crazy over the devices, but we do have offers that supplement the core service pricing. But we do it in a way -- because we're well positioned with this core MVNO that we do have, and now we have nice opportunities to maybe even opportunistically improve economics through the CBRS offload if we wanted to, but don't have to. It's nothing but an opportunity for us, and we continue to test and look at that. But we like our position right now.

And as you already said, it's already profitable. And with the base between yourselves and Charter, you would think that, over time, you actually have more price. You can command some pricing power in your MVNO agreement because you're big right now and you're only getting bigger. And you're right, it's a very important contract for Verizon, and it's one that the rest of these MNOs would like to have.

I think we're an attractive partner, and you can take away a lot of the upfront expenses of acquiring and then holding on to those customers and you do a good job. If you're a long-term participant in the industry, it's one thing if you're a distributor where you're in and out. We're in the business. We're in to stay. We love our long-term prospects, and I think our partner likes that, too.

Okay. Makes sense. I was going to turn to video. I'm not going to spend too much time on video. I do want to -- some comments, you guys just signed a renewal with Warner Bros. Any comment you could share with our audience on how you view that deal?

Sure. We are...

I think it was early deal, right? Was it redone earlier? Or is it -- was it expiring?

Just announced today. So we renewed a handful of different agreements. And what's different and unique about this, other than the fact that it's a unique relationship that we have with Warner Bros. is it's a very wide spread between the U.S. and Europe with Sky is that we renewed on multiple fronts. We renewed in the U.S. around Turner, Discovery, Scripps. We renewed with them in Europe, it was Sky. And that is good news that we're able to do that. And it's good news, because speaking of checking boxes, I think it checked a lot of boxes for both of us. It is another, I think, really important win-win in that it's good for both parties. And especially when you have the scale that both of us have and being able to resolve things to the benefit from our standpoint, I think it's a huge win in that we got the economics that we're looking for on the renewal terms. Really good economics, I think, industry-leading that we have. And we have flexibility. There are 2 things that we're looking for in a marketplace at this point in general. We're looking for great economics that helps us serve every segment that we go after and being able to leverage video in a way that partners well for broadband and, again, built for streaming. So we want to have packaging and streaming flexibility, so we can take linear and streaming applications and partner it for each segment as we need to. So that flexibility is awfully important, but getting core economics right make a lot of sense. We were able to do both of those things in this case. So with a good partner in Warner Bros. Discovery. We're pleased. And in Europe, in Sky, it's unique there. We were able to accomplish a very important renewal as we maintained really great HBO content for the Sky Atlantic, Sky Cinema channels and ingesting that content on those channels was important, and then making sure we opened up content for the Sky NOW tier where previously it was not available. So now we have it available, the Max app available now on that platform. And for us -- and we were -- the great content that Warner's, Discovery, Scripps has and then all over, I think they appreciated the platform that we have in that we're a good partner to deliver customers, maintain customers, but it's -- we're a great partner when it comes to an industry-leading platform. Being able to find their content, easily assembled in ways that make sense for the customers. And in Sky, it's available in multiple ways, ingested on linear, on-demand, through apps. It's a great way. And then from a transition perspective, they will also offer it directly. So it's a great win-win truly for 2 partners that had global scale, right?

And you talked about the linear and at the same time the flexibility around their D2C services. I don't know, as part of this contract, is HBO -- or I guess, Max included? One of the things, obviously, Charter has made some noise over the last year or so in terms of including all these. Is that something you guys could see Comcast doing in including these D2C brands and these media companies as part of your sort of expanded basic?

I think for the right segment, what Charter is doing is very smart, and we have the flexibility to do that. So with this deal, we can -- I think we have the industry-leading economics and packaging flexibility. Our strategy is a little different in that we segment the marketplace. And for certain packages, we will include apps now and in the future where it makes sense. But from our standpoint, it won't necessarily be every tier of video where we'll do that. So we'll have certain -- we have NOW TV that has a lighter amount of linear and fast channels that we have. There may be some apps that will be included, and there'll be different offers that we have. As we reimagine video for the streaming world and to partner it for broadband, you're going to need unique value propositions to compete. And so from our standpoint, we'd rather do something new and unique in terms of segmentation versus doing one size fits all. But for certain -- the high-end segment, it could make a lot of sense. And the important point is, for this particular deal, we have all the flexibility that we need.

Maybe touching on -- we get a couple of more minutes here. I've got a couple of more topics I want to touch on. First is the business segment. You talked about it as a contributor to growth as a company and this new product with Ethernet over cable and the new passings. Just how is your visibility to continued growth of that business? And do the network upgrade that you've laid out, does that help you penetrate that market and sort of help you guys compete against the other providers out there?

Again, starting at the top line with the $60 billion addressable marketplace, and yes, we're less than 20% of that at this point, it's a -- and our goal is never to settle for not having anything less than half. And as we've accomplished that, we're damn close to it with SMB. So to do that, and you've seen us go after opportunities to improve our portfolio in terms of addressability as we did with Masergy. And now we can go global. And practically just anywhere, we're taking care of customers wherever they are. In addition, too, with Masergy, what we got are applications that help us drive revenue deeper. So we used to be, with business services in mid and enterprise markets, we were either a nice #2 for connectivity. The Head of IT would be -- it's a pretty safe bet to get my back up from cable or just to make sure systems were there. Now we're talking about everything. So we're talking about SD-WAN, to UCaaS, to connecting data centers, to everything. We're the primary, and giving control shared with the consumer with very large clients that needed to be perfect and on, that we're stepping up to that plate and have been winning very large accounts, enterprise accounts that are going. So we like our road map for that. And again, the Ethernet over cable is a really nice thing that we can do within our footprint. Good for mid-market. But we're going to continue to add to the product portfolio because our strategy will be dual in that there's a healthy connectivity opportunity and just relationships. But every single relationship, there's a revenue opportunity to grow as we become the primary service provider.

Makes sense. So -- and lastly, just to wrap up, we talked about all these lines of growth the company is pursuing. Let's talk a little bit about margins. You've seen real margin -- really consistent margin improvement over a number of years in the Connectivity & Platforms business. Just given what you're seeing now, given the mix shift, sort of less video, more broadband, more wireless, what's your visibility into continued margin improvement as you look out over the next couple of years?

Well, you hit it on the head, John. The first thing right out of the top is the mix shift. As you have a little bit more of a drag on things in video, you move more towards connectivity business services, broadband, you get the benefit of margin lift as you do that. We've been seeing that. That has been happening. There's more to come on that. But it doesn't stop there. Very financially disciplined around fixed cost, always have been, take a hard look at that constantly. We're not one to wake up and say, let's -- it's every day. We look at opportunities to improve the fixed cost structure. But the biggie for us remains, just taking out lots and lots of volume and truck rolls and call center activity as we improve digital capability, as we have now fully entered AI, for us, it is real. It is going to be, I think, a terrific addition to margin improvement. Just the -- when you talk about the network side of things, the ability for us to identify problems that prevent if there's an issue, close with AI tools that we've deployed for network performance, we identify things, and about 60% of alerts are self-healed because of AI. And as we've built out the network, we had built out AI throughout our entire network. And then you get into customer service and repair, being able to do unique things like instant delivery of products, taking SIK to a whole another level, AI, I think, is going to help us be able to take out unnecessary transactions, but amplify good transactions. So we can do a better job in base management upgrading revenue and being able to take out some of the noise in the system that continues to be unnecessary. So from a margin standpoint, I think there's a long road ahead for us to continue to improve.

That sounds great, Dave. And that's all the time we have today. Dave, thanks for being here. Appreciate it.

Yes. Thanks, John. Thank you.